Government urges seniors to spend super before they die
The Morrison government is encouraging retirees to spend their superannuation balances before the pass away.
Super funds have been asked to develop strategy funds so it is easier for members to withdraw and draw down their super balances during their retirement.
The strategy follows after it was revealed a growing number of retirees are dying with a majority of their wealth still intact.
By 2060, one out of every three dollars paid out of the superannuation system will become an inheritance rather than retirement income, the government’s retirement income review has determined.
“Partly because they have only ever been primed to save as large a lump sum as possible, retirees struggle with the concept that superannuation is to be consumed to fund their retirement,” the Treasury said.
“Because retirees struggle to develop effective retirement income strategies on their own, much of the savings accrued by members through the superannuation system are not used to provide retirement income.”
The Grattan Institute’s economic policy program director Brendan Coates said “most retirees could afford to spend substantially more than they do”.
“Many retirees seem reluctant to draw down on their capital, and instead live solely on the income their savings generate.”
The new strategy is one of the latest attempts by the Federal government to address the superannuation issue.
Initially in 2014, the commonwealth considered requiring super funds to offer members a comprehensive income product for retirement.
The product would provide retirees with an income for life, no matter how long they went on to live.
However, the Treasury paper has suggested that the government shouldn’t consider this approach and instead recommended that super funds create a strategy that suits the particular needs of their members.
“The retirement income needs of members, and the plan to service those needs, may be different from fund to fund, or from cohort to cohort within a fund,” wrote Treasury.
The Grattan Institute’s Mr Coates cautioned policymakers to “proceed carefully on CIPRs since such products are not well understood by most Australians”.
The Australian Institute of Superannuation Trustees chief executive Eva Scheerlinck has said in a statement she is “pleased the position paper doesn’t propose mandating particular products, such as annuities or the previously proposed CIPRs.”
“It would not have made sense to mandate a superannuation longevity product, for example, for a member who is likely to retire with $250,000 or less in super, when the age pension will give that member longevity income protection.”