Australia's leading longevity research organisation has suggested that the government encourage retirees to use their superannuation as an income stream rather than take it in a lump-sum withdrawal. Without knowing how long the lump sum will last, retirees are unable to plan, and often outlive it and end up on the means-tested publicly-funded Age Pension scheme.
The Centre of Excellence in Population Ageing Research (CEPAR), which is the government’s preferred researcher on ageing and superannuation, said in a submission to the Financial System Inquiry that the superannuation policy focus needs to change from being an “accumulation” policy to an “income in retirement” policy. Changes to policies and regulations could help to develop "an income mentality", it said.
"The absence of options to access superannuation savings as gradual income forces the lump-sum culture on people who may not want it," CEPAR director Professor John Piggott said.
"We know people who retire early may not have as much money as they anticipated. When the lump-sum runs out, they revert to the pension system or try to re-enter the workforce."
The Allianz 2014 Pension Sustainability Index report, released earlier this month, found it concerning that Australia’s superannuation system allows people to give lump sum contributions. Allianz Australia managing director Niran Peiris said: “The report highlighted that allowing people to take all their superannuation savings as a lump sum to be used to repay home mortgages or other purposes risked leaving retirees with reduced incomes for their retirement.”
In another suggestion, CEPAR said that a menu of retirement income products should be available to retirees. This will require consideration of the private sector structures that determine what products are available, the regulatory environment and barriers to entry, it said.
The centre also called on the government to consider the ability of the private sector to intermediate long-term and longevity risks, suggesting that this has not been adequate.
CEPAR proposed too that the government examine whether it could provide directly longevity insurance products or financial instruments. “The apparent market failures around longevity products suggest that there is a rationale for this kind of intervention,” said the submission.