Issue 784, 23 November 2020
In this issue:
- Retirement Income Review: final report
- Promoting access to affordable advice for consumers: ASIC consultation
- Insurance in super: ASIC report
- COVID-19 Coronavirus: early release of super – APRA data
Retirement Income Review: final report
On Friday, the Government released the final report from the Retirement Income Review.
The extensive report—over 600 pages in length—contains no formal recommendations but does include a number of key ‘observations’. At a very high level, these include:
- the Australian retirement income system is effective, sound and its costs are broadly sustainable. However, there are areas where it can be improved and there is a need to address complexity and improve understanding of the system
- a clear objective for the system is needed to guide policy, improve understanding and provide a framework for assessing performance of the system. This should be developed around the goal: ‘to deliver adequate standards of living in retirement in an equitable, sustainable and cohesive way’
- the appropriate adequacy objective for a system based on compulsory superannuation is to balance living standards across a person’s working life and retirement. A rate of compulsory superannuation that would result in people having an increase in their living standards in retirement may involve an unacceptable reduction in living standards prior to retirement, particularly for lower-income earners
- more efficient use of savings in retirement can have a bigger impact on improving retirement income than increasing the SG
- using superannuation assets more efficiently and accessing equity in the home can significantly boost retirement incomes without the need for additional contributions
- the Age Pension, combined with other support provided to retirees, is effective in ensuring most Australians achieve a minimum standard of living in retirement in line with community standards
- compulsory superannuation allows people to achieve a retirement income that better reflects their pre-retirement income. People will increasingly fund more of their own retirement as the superannuation system matures, but the Age Pension will continue to supplement the retirement income of a large proportion of people
- superannuation savings are supported by tax concessions for the purpose of retirement income and not purely for wealth accumulation, but most retirees leave the bulk of the wealth they had at retirement as a bequest
- the home is the most important component of voluntary savings and is an important factor influencing retirement outcomes and how people feel about retirement. The system favours homeowners
- while the Age Pension helps offset inequities in retirement outcomes, the design of superannuation tax concessions increases inequality in the system. Tax concessions provide greater benefit to people on higher incomes
- there are areas where superannuation tax concessions (in particular, the earnings tax exemption in retirement) are not a cost-effective way to help people achieve adequate retirement incomes.
The Government has not released a detailed response to the report however the Treasurer and the Assistant Minister for Superannuation Financial Services and Financial Technology have commented as follows:
“Through its work, the review has established a fact base that will improve understanding of how the retirement income system operates, better informing public policy and the retirement outcomes delivered to Australians.
Importantly, the Review provides confirmation of the policy direction being pursued by the Morrison Government with respect to the importance of increasing the efficiency of the superannuation system and lifting home ownership rates – both identified as key drivers of an adequate retirement income.
Specifically, the Government’s ‘Your Future, Your Super’ reforms will simplify and enhance member engagement with their superannuation and increase the efficiency of the superannuation system through lowering fees and improving returns, benefiting Australians by $17.9 billion over the next 10 years.
Additionally, given the importance of home ownership to the financial security and wellbeing of Australians in retirement, the Government will continue to support measures to allow more Australians to buy their first home sooner, including through our First Home Loan Deposit Scheme, First Home Super Saver Scheme and HomeBuilder.
The Government will continue to carefully consider the observations made in the Review together with the findings of related reviews including the Aged Care Royal Commission and remaining recommendations of the Productivity Commission’s report into Superannuation.”
Promoting access to affordable advice for consumers: ASIC consultation
ASIC has issued Consultation paper 332 Promoting access to affordable advice for consumers (CP 332). In CP 332, ASIC is seeking feedback on:
- problems associated with providing limited advice
- terminology used to describe ‘limited advice’
- availability and affordability of personal advice
- experience with digital personal advice
- any other issues relating to delivery of both affordable personal advice and limited advice.
ASIC is also planning to hold a series of roundtables with industry and other stakeholders in early 2021 to discuss issues raised in submissions received relating to CP 332.
If you have any feedback you would like ASFA to consider in responding to CP 332, please forward it to Maggie Kaczmarska by close of business Friday 8 January.
Insurance in super: ASIC report
ASIC has released a report detailing independent research on the experiences of superannuation fund members who directly engaged with their fund about insurance held through superannuation.
The research, commissioned by ASIC from Susan Bell Research, explored the experiences of fifty superannuation fund members, who were not using a financial adviser and directly contacted their fund to make enquiries about or make changes to their insurance arrangements.
The findings from the research have been released as Report 673 Consumer engagement in insurance in super (REP 673). Some key findings include:
- the process of gaining information about insurance arrangements from their super fund or making changes to the insurance presented several potential hurdles to many members. Some of the issues identified included limited knowledge and understanding of insurance in superannuation and a relative lack of confidence among members because of the complexity of web-based information
- most of the participants who had engaged with their insurance for fact-finding or to address lack of knowledge about their cover found it was not the simple, self-service process they had expected. Many wanted more than factual information
- after interacting with their fund, about a third of the participants felt confused, overwhelmed or uncertain and found insurance complex and difficult. Some discovered information they did not understand or did not know how to respond to, often causing them to delay in engaging further with their fund on insurance after their initial interaction.
The research highlights some challenges for trustees, such as those associated with providing more tailored information for members. It also notes the opportunity for trustees to significantly improve their members’ experience by improving communication to members about insurance, including on their websites. The researcher concluded that many of the problems that members experienced may have been reduced or avoided if the information they sought was easy to find, clear and balanced.
ASIC is encouraging trustees to consider the issues raised in the report and how they might improve the experience of their members when they seek to engage about insurance.
ASIC notes that it has been working on a number of initiatives designed to improve trustee practices around insurance in superannuation, including examining default settings on occupational categories and analysing the value for money delivered to members.
COVID-19 Coronavirus: early release of super – APRA data
APRA has made its thirtieth weekly publication of industry-level data from its early release initiative data collection.
The data covers applications made from inception of the early release initiative on 20 April. The data shows that from 20 April to 15 November:
- payments totalling $35.2 billion had been made, with an average payment of $7,653
- 3.3 million ‘initial’ applications had been received, with an average application amount of $7,400
- 1.4 million ‘repeat’ applications had been received, with an average application amount of $8,319
- funds were taking an average of 3.3 business days to pay an application, with 95 per cent of applications paid within five business days.
APRA has also published the twenty-ninth tranche of fund-level statistics from its early release data collection, revealing the number and value of the payments processed by each fund, as well as the time taken to make payments.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
