THE Senate Select Committee on Superannuation’s Planning for Retirement inquiry delivered its final report last week, with the response from the industry overwhelmingly positive.
The inquiry was initiated in December last year with the aim of assisting those nearing or entering retirement with their planning and in the transition itself, with the recommendations finalised following a period of industry consultation via written submissions and public hearings.
The most significant recommendations centre around changes to the superannuation income payment and assistance to mature age workers, according to committee chair Senator John Watson.
While the committee majority — effectively the Liberal and Democrat representatives — support the introduction of a mandated conversion of a portion of retirees’ savings to a complying annuity upon retirement, rather than taking the entire amount as a lump sum, the Labor contingent does not agree.
Labor senator Nick Sherry says: “Clearly there is a difference in opinion about the direction we should go. Labor takes a position that there should be incentives to encourage people to take a pension, but it should not be compulsory.”
As a continuation of this action, the committee has also recommended that the Government review the current restrictions on complying annuities to allow retirees to invest in growth pensions.
The industry has rushed to praise this move, which would allow retirees to access products with higher returns and taxation and social security benefits, with theInvestment and Financial Services Association(IFSA), theAssociation of Super Funds of Australia(ASFA), and theFinancial Planning Association(FPA) all supporting the proposal.
But it’s not the first time this suggestion has been made. In 2001 the Government made an electoral promise to consider the issue, and it was the subject of a recommendation in 2002 by the current committee’s predecessor, the Super and Financial Services Committee — with Sherry indicating that the matter seems to be stuck in limbo.
“Ensuring that there is another option for retirees to select as an income stream would be an important improvement, but the government has been reviewing pensions for the last 18 months. I ask about it at [the Senate] Estimates [Committee] and never get an answer — it seems to be a never-ending review, ” Sherry says.
Financial education and advice for workers nearing retirement is another area of focus for the recommendations, and one that has raised the ire of the FPA.
Deeply concerned about the practice of trailing commissions, the committee says it “does not believe that this system encourages financial planners to provide conflict-free, objective advice”. Instead, it supports a fee-for-service model, suggesting that the Government re-examine the tax deductibility rules for financial planners’ fees to make this a more attractive option.
However, while it praised the Government’s introduction of the Financial Services Reform Act (FSRA) and highlighted the role of financial advice in planning for retirement, it also recommended that the Productivity Commission investigate the remuneration arrangements for financial planners and superannuation investment fund managers.
FPA chief executive Ken Breakspear says that a Productivity Commission investigation would be “unnecessary and a waste of resources” at this stage.
“We want the current reforms under the FSRA in terms of levels of disclosure and codes of conduct, and under our Professional Partners program from a self-regulatory perspective, to take effect. Our outlook is that there are clear expectations that things will improve through the current reform process,” Breakspear says.
A number of recommendations — such as promoting part-time positions for mature-age workers, reforming current Commonwealth Government defined benefit schemes to remove the disincentive to continue working beyond certain ages, and reviewing the pension bonus scheme to increase its attractiveness to individuals past age pension eligibility — are aimed at both encouraging mature-age workers to remain in the workforce and smoothing the transition from work to retirement.
However, proposals to use superannuation savings to finance retraining and to change the eligibility age for the age pension were both dismissed, as the committee felt there was strong evidence against taking these actions.
The report will now be considered by the Government, with a response expected within three months.
