Tailored drawdown advice hindered

25 September 2019

Superannuation funds are hindered from offering more tailored drawdown guidance thanks to concerns about regulatory constraints on providing advice and limited information available about retiree members, according to Willis Towers Watson.

The advisory firm’s head of retirement solutions, Nick Callil, said minimum drawdown in retirement might be too conservative for retirees with meaningful balances.

Callil said in an analysis titled ‘Superannuation is for spending’ that retirement drawdown rules needed to be better designed to ensure retirees were not too conservative in their spending.

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He said the aim of the overall retirement income system needed to encompass age pension and related benefits, and compulsory and voluntary superannuation, rather than just looking at superannuation, to promote better integration.

Callil noted that often the amount taken into retirement acted as a “capital base” to generate investment earnings which could be spent but often remained untouched.

“Often there is an assumption (generally unspoken) that assets individuals have accumulated for retirement are not to be drawn down during the retirement years,” he said.

However, a “spend the income” mindset for most retirees was unrealistic.

“Living off the interest income from term deposits or the dividend income emanating from a share portfolio sounds attractive but for most retirees (who have little in the way of income-producing assets outside superannuation) this sort of strategy is unlikely to produce an income they might regard as adequate,” he said.

To create a more comprehensive aim of retirement income Callil said the industry and government needed to look at:

  • A retirement income objective that concluded that the retirement provision should be in income form and that capital balances should be spent down over retirement;
  • Retirement income estimates that were mandatory for super funds with some sensible limited exceptions at the fund and individual level;
  • Careful use of the term ‘income’ which could confuse members with the dual meaning of investment earnings and income received from a fund during retirement phase. “Drawdown” or a similar term would be a more appropriate term to refer to amounts paid to retirees in pension phase;
  • Well-designed drawdown rules to ensure they were not too conservative and did not promote inappropriately low spending; and
  • Better retirement products to allow retirees with meaningful balances to spend their savings more confidently earlier in retirement only if they are sufficiently comfortable that they will not run out of money in advanced old age.

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Oh that is amazing - so they need advice!! There is a revelation. But the last people they need it from are the vested interests of the Trustees. Please don't pretend you have the expertise of knowledge to advice Australian Consumers on their money. It is their money - not yours - so let them make their own decisions with informed advice

But that is the actual point isn't it - it is not the consumers money. It stopped being the consumer's money the minute it was contributed to the fund. The fund "owns" and ultimately controls the money via the Trustee. The consumer is only a beneficiary until it lands in a bank account in their name. So what advisers like you should be doing is pushing for an extension of SMSFs and to balance the needs of vulnerable consumers they are given the choice of a proven reputable trustee individual.

Have you ever spoken to a retiree with a "meaningful balance"?
They have accumulated a meaningful balance because they are savers, NOT consumers.
It must be remembered that these retirees learnt their financial management from their Depression or WW2 era parents. Tell them to spend their capital and they will respond with "if I spend it today, I won't have it tomorrow".
Pre-retirees who know how to spend will not save meaningful retirement balances to spend in retirement.
Attention should be focused on the wealth transfer to the consumerist generations who will blow their inheritance and then put their hand out for the Age Pension.

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