Warnings on superannuation lump sums
It may actually be financially detrimental to be unduly prescriptive about the manner in which people withdraw their money from the superannuation system, according to Institute of Chartered Accountants superannuation specialist Liz Westover.
Westover has questioned the validity of suggestions that the Government legislate to place a cap on the amount a person can withdraw from super as a lump sum and has pointed to some broader issues for the superannuation system.
"It may actually be financially detrimental to place such restrictions on individuals, particularly if they wish to withdraw savings to pay off a mortgage, minimising ongoing interest," she said.
"These restrictions may also result in people contributing less into super in the first place and directing surplus cash to their mortgage or other investment vehicles during their working life."
Westover said there was also the concern that requiring people to take a pension from a low starting balance might force them to withdraw a small, nominal pension when they might be able to do something more meaningful with a lump sum.
She said that in order to address the longevity of super savings, incentives were required to encourage greater use of pension and annuity products.
"These types of products need to be attractive and accessible, and consumer education will be key to ensuring super savings go as far as they can," Westover said.
"Importantly, flexibility in the system is still needed to ensure retirees are given choices about how they use their own super savings."
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