Tax concessions didn’t work. Can super advice move the needle?
The Federal Treasury has revealed the degree to which 2017 regulatory changes aimed at encouraging the take-up of lifetime income products has fallen well short of expectations.
In fact, the Treasury’s new discussion paper around Superannuation in Retirement reveals that the tax incentives provided in 2017 did little to make annuities or similar products any more attractive.
It is now looking to superannuation funds through the delivery of both advice and appropriate products to address the problem but, at the same time, the discussion paper makes little reference to financial advice outside of superannuation.
“The take up of lifetime income products by members remains low, and the market remains underdeveloped. This is the case despite broader regulatory changes in 2017 to remove impediments to innovative product design, including extending the tax exemption on earnings in the retirement phase to these products,” the Treasury discussion paper said.
“Since then, few new innovative products have come to market. Most funds only offer an account-based pension and a transition-to-retirement income stream product.”
“Typical account-based pensions provide retirees with flexible access to capital, but without more guidance or active engagement from the retiree, they risk not effectively meeting the other two retirement income covenant objectives: maximising retirement income and managing risk. “
“These are not new problems. In 2014, the Financial System Inquiry raised concerns about the lack of choice in products available in retirement. The Inquiry found that the use of well-rounded standardised retirement income products that balance income, risk management and flexibility could increase retirees’ incomes.”
The Treasury also pointed to the 2020 Retirement Income Review having pinpointed the lack of innovative products available.
It said that the need for retirement income products was becoming more urgent.
“There are currently 1.6 million people aged 65 and over receiving income from a superannuation product, but over the next 10 years, an estimated 2.5 million Australians will move from the accumulation to the retirement phase.9 They will be retiring with higher balances, having benefited from the SG for a longer period of their careers. By the mid-2040s, most people retiring will have been receiving the SG at 9 per cent or greater for the duration of their working lives.”
“As balances increase, superannuation will become the primary source of retirement income for many retirees, relying less on the Age Pension. Over the next 40 years, drawdowns from superannuation are estimated to increase from 2.4 per cent of GDP in 2022–23 to 5.6 per cent of GDP in 2062–63,” it said.
“Australians – now more than ever – need to have access to the right information, advice, strategies and products to help them make the most of retirement through superannuation and understand how it integrates with the rest of the retirement income system.”
One of the main considerations in using a lifetime income product is rate of return, and one of the main drivers of return for these types of products is prevailing interest rates at time of purchase.
Given we have only just come out of an extended period of unusually low interest rates, it seems a little too soon to draw conclusions about the attractiveness of these products in more normal environments.
The changes to super in 2017 only impacted clients that don’t need income certainty later in life as they already are reasonably wealthy.
WHEN will regulators, treasury and ASIC start consultations with industry experts in the construction of the regulatory framework?
They are now busily trying to figure out how to get advice to the masses after cancelling commissions. I’m not advocating for commissions but ANY adviser could have told them that if they can commissions less people will get advice.
These muppets of life long public servants prognosticate from on high with no comprehension of how the real world works.
Until they start to listen to professional practitioners this unfortunate situation will not change.
How about you do your job and stick to fixing the hot mess first mate…. can’t even get that over the line.
Oh yeh let’s have another freaking review into Super, Retirement & Advice, what no. 20 review in last 12 years.
FFS the QAR is supposed to fix the Hot Mess of mass BS Govt & Bureaucratic Over Regulation of Advice.
But no, that hasn’t gone anywhere yet and these Red Tape warriors are going to waste more time and money reviewing what hasn’t been implemented from the last review.
ADVISERS AND THE GENERAL PUBLIC HAVE HAD ENOUGH.
CANBERRA Govt & Bureaucratic MORONS COULDN’T RUN A CHOOK RAFFLE.
CLEAN THE SWAMP AND START AGAIN.
Here’s a novel idea – implement QAR before doing another useless review.
When the government is able to be honest and acknowledge that Financial Advice isn’t just about super we will get somewhere. They must first stop pandering to the ‘vertically integrated Industry Fund model’ which is riddled with ‘Conflicts of Interest’, and will lead to another Bank style Royal commission if they ignore it.
Understand that Retirement Advice must be ‘personalised advice’ around the following: Non-super Investments, Property Downsizing, Estate Planning, Super & Pensions, Centrelink Advice, Budgeting(The cost of living), Aged Care Advice, Intergenerational Wealth Transfer, Insurance(Health, personal, and general), and taxation implications.
The government must stop pretending that advice only relates to superannuation, it’s a whole lot more than that. The vertically integrated funds should not be allowed to become quasi-advisers with such a stark conflict of interest as being also the product provider. Isn’t this exactly the issue ASIC had with the banks involvement in advice. Are we just going to turn a blind eye to this?
The vertically integrated super funds are given too much attention and influence when in comes to financial advice, rather than the advice community, the majority of which act in an ethical manner when it comes to ‘product & platform choice’ for their clients. The only ones not providing choice are the vertically integrated funds(i.e. Industry Funds Super(IFS)).
If they don’t fix this glaring conflict and urge IFS to provide fair product choice, and the opportunity to actually receive ‘real personalised advice’ then hello to Royal Commission 2.0 in the future.