We might save more in super if we knew where it went
Not since Paul Keating introduced compulsory superannuation contributions in the early 1990s has there been such an important opportunity to change the way Australians think about saving for their retirement.
This urgent need for change is magnified when Australians are asked how much they actually know about their superannuation. A recent survey by Suncorp Life found 49 per cent of us don’t understand our super, and 30 per cent of us don’t believe our super is even our own money. Annual changes to the superannuation system are also a constant and frustrating occurrence. That’s why it’s vital for the Government to get it right this time.
The results of the much-anticipated Cooper Review announced last week urge a range of sweeping reforms to superannuation, and herald an exciting new era for the industry. The question is whether the Government is prepared to do what’s needed to simplify the system, and restore Australian’s confidence in superannuation.
For most of us, retirement will last 20 years or more and to ensure a comfortable retirement, it’s estimated the average single person will need $38,611 a year and a couple $51,727. For many, that equates to a lump sum total of more than $750,000 for singles, and more than $1 million for a couple, in the absence of securing any aged pension entitlements. The projected superannuation savings at retirement of many Australians currently fall well short of these totals.
A proposed increase of the compulsory Super Guarantee (SG) contribution from 9 to 12 per cent will be slow and incremental over the next 10 years. The fact we’re living longer and the Government no longer allows large concessional contributions later in life means Australians will need to save more, and for longer, in order to achieve a reasonable income in retirement.
The reality is that workers aren’t willing to tip any more of their pay packet into their superannuation if they don’t understand where their money is going. Making the system more transparent is central to the Cooper Review’s recommendations and this is why it’s critical the Federal Government takes heed. The Review also recommends tighter regulation of fees charged and a new code of governance. This will help to restore people’s confidence and improve their knowledge of the way the system works.
The Review’s MySuper recommendation provides a common sense solution to many employees who need only basic superannuation features. This ‘no frills’ super fund with a single investment option and limited insurance will be easier for those consumers to understand and hopefully get people more interested in their superannuation early, to save enough to improve their retirement outcomes.
However, in framing reforms like MySuper it is imperative the Government does not exacerbate Australia’s chronic under-insurance problem. Superannuation has been an important vehicle in improving the level of insurance held by Australians. It would be disappointing to see these changes bring about a reduction in the number of Australians choosing adequate levels of insurance.
We understand the Government wants to make sure superannuation savings are not unnecessarily diminished by insurance costs, but this is a critical area that the Government and the industry must engage on to get the best outcome for members.
The Government’s response to the Henry Tax Review was announced with much fanfare and commentators were poised for big change. However, instead of seizing the opportunity for significant reform, the Government accepted only a very small number of the Review’s 138 recommendations. That’s why it’s vital for the Government to get it right this time.
Australians are now enjoying a healthier, more active retirement than ever before, and it’s important we all have the financial resources we need to make the most of the golden years of our life. Therefore, the Government should not miss the opportunity for genuine reform that can improve the retirement outcomes for all Australians.
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