Financial planning and active management is integral to people handling their money in post-retirement and the Government should steer well clear of introducing a “MyRetirement” regime similar to MySuper, according to the Financial Planning Association (FPA).
In a submission responding to the Treasury’s discussion paper on Comprehensive Income Products in Retirement, the FPA said it opposed the Government’s proposal to introduce a MyRetirement regime, “even a soft default regime for ‘disengaged’ members”
In doing so it pointed out the significant differences between dealing with people in the superannuation accumulation phase and the post-retirement, draw-down phase.
“The MySuper regime works because the accumulation phase of superannuation is passive. It works over a long period of time with regular contributions and the benefits of compound interest, and can performance deliver as a ‘set-and-forget’ type of long term savings strategy,” the FPA submission said.
However it said the concept of disengaged members was based on behaviours seen in the accumulation phase of superannuation, which is substantially different to member engagement during the pension phase.
“Retirement, or the pension phase of superannuation, is active and is significantly different for every individual. Retirement income needs to be actively managed to cater for cash flow demands which commonly change from year to year, and unexpected lump sum needs, for example,” the submission said.
The FPA said that while the Treasury’s discussion paper had stated that the MyRetirement proposal was seeking to address the problem of: “Individuals face complex financial decisions, a lack of guidance and behavioural biases at retirement but many are unlikely to seek financial advice”, other research had shown a significant increase in consumers actively seeking financial advice in the lead up to and during retirement, demonstrating a change in behaviour from potentially disengaged during the accumulation phase, to an engaged member in the lead up to and during the pension phase.
It said 53 per cent of Australians who currently seek financial advice are over 50 years of age and that over 45 per cent of active financial planner clients first started seeing a planner from 50 years of age or above with 39 per cent being aged between 50 and 64 years, which is the age when individuals commonly start their transition to retirement.
The FPA said that while the Treasury had undertaken consumer research around its MyRetirement proposal, the FPA questioned whether disengaged members would have actually taken part in such a study as participation would “in and of itself indicate a level of engagement”.