The Australian Prudential Regulation Authority (APRA) announced this week that our national super pool is now worth close to $4.8 trillion. Not bad for the world’s 55th most populated country.
But don’t let that deceive.
On paper, the system is looking good. Balances are growing and returns have been strong. The real test, however, is not simply how much we’ve accumulated, but whether Australians can turn their savings into retirement income and feel confident enough to spend it.
On that measure, we are falling short.
AMP’s latest Retirement Confidence Pulse puts national retirement confidence at an underwhelming 52 per cent, marginally up from 50 per cent last year and well short of where it should be.
Compounded by cost-of-living pressures, nearly three in five told us they worry they will run out of money in retirement.
While we have built a system that is very good at accumulating money, we have neglected the retirement phase, which is when Australians need their super funds to support them the most, with the right advice and the right solutions.
The true measure is confidence, and if we want to lift that score, five things need to change.
1. Implement advice reforms
The Government has made welcome progress on advice reform, but the job is far from finished.
Advice is central to confidence. Australians in our research who use a financial adviser recorded a confidence score of 79. Those without an adviser scored 43. That is a 36-point divide that cannot be ignored.
The government’s response to Shield and First Guardian rightly targets predatory lead generation and weak points across the advice and investment chain. Its renewed commitment to safe, targeted advice is equally important. The answer to bad advice is not less advice. It is more accessible, affordable and accountable advice.
But for the advice ecosystem to work effectively, there also needs to be clarity around the different forms of advice, their respective roles and appropriate safeguards, including the proposed new class of adviser.
Super funds can be an important entry point for advice, but they should help, rather than hinder, their members accessing more investment choice and fully qualified comprehensive advice, when they need it.
2. Make lifetime income a mainstream choice
Most retirees still rely heavily on account-based pensions. While they provide valuable flexibility, they also leave individuals to manage complexities including longevity, market and spending risk.
Eighty-four per cent of Australians in our research said if they had an income that lasts for life it would give them more confidence to spend. The government has unveiled new best-practice principles for retirement income solutions, but funds now need to turn those principles into genuine choice.
That does not mean putting everyone into the same product. For many people, the answer may combine an account-based pension, lifetime income and the Age Pension. The goal should be to balance individuals access to capital, growth and certainty, supported by advice that helps people understand those trade-offs and make genuinely informed choice.
3. Lift the service floor for super funds
At a minimum, every default fund should be required to provide a consistently high level of help. Good service cannot be an optional extra.
The retirement system in Australia is hard to understand, so members also need help deciphering concepts like preservation age, transfer balance cap and the nuances of tax rules.
On this front, the government’s proposed mandatory member-service standards are welcome. But the standards should reach further. Funds should face published and enforceable response times, members should not wait unreasonably long to speak to someone who can help, and every default fund should provide access to a simple digital retirement-advice pathway.
At retirement, a member should not be passed from a call centre to a website and left with a calculator.
No fund gets this right every time, including AMP. We all have more work to do and should be judged by the experience we provide, not simply our intentions.
4. Join-up the retirement system
People do not retire just with their super. They retire with a home or mortgage, savings, a partner or dependants, health costs and possible Age Pension eligibility. Yet we make them navigate each part separately.
The Government is now considering carefully controlled data-sharing between Centrelink and super funds. With proper consent and privacy protections, that could give members a clearer view of their likely retirement income. It should be pursued. Advice is only as good as the financial picture behind it.
5. Measure what matters
The new Retirement Reporting Framework is an important step because it will bring greater transparency to what funds offer and the outcomes members receive.
Alongside returns and fees, the scorecard should show service levels, access to advice, take up of retirement-income solutions and whether members understand what they can safely spend. Confidence should not replace hard financial measures, but it should sit beside them.
More than 2.5 million Australians are expected to retire over the next decade. We do not have another decade to work this out.
Australia’s accumulation system is rightly admired – we punch well above our weight in the savings stakes. Passing the next test means helping people turn those savings into a dignified retirement, with the confidence to enjoy it, not fear it.
On that measure, 52 per cent is not a pass. It is a call for government, regulators and industry to lift our game.
Blair Vernon is chief executive of AMP.
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