The federal government has proposed an overhaul of retirement income products to help people make better financial decisions about what to do with their superannuation when they retire.
Treasury’s Retirement Income Disclosure Consultation Paper, released on Monday, proposes a simple fact sheet to allow people to more easily compare retirement income products and how they could affect their standard of living as they move into their golden years.
The fact sheets are designed to focus on the key features that matter most when making retirement decisions – income, flexibility and risk management. They would also increase transparency in the super industry.
As people approach retirement they now are often bombarded with a host of complex financial and legal information that does not provide clear information on the expected level, variability or duration of retirement income.
Assistant Treasurer Stuart Robert said retirees regularly receive lengthy product disclosure statements that focus more on the product issuer’s legal responsibilities, rather than information that helps the retirees to make a good investment choice.
One easy-to-read fact sheet could go a long way toward helping to overcome product disclosure shortfalls, he said.
The Treasury paper proposes a standardised measure whereby retirees would be able to more easily compare retirement products that provide income as a substitute or a supplement to the age pension.
Based on a $100,000 investment, these would include:
- The amount of periodic income provided
- The likelihood that the income may fall short of expectations in a given period
- The degree of protection the product provides against the risk of running out of money
- The level of access to underlying capital or for lump sum withdrawals
The design of the fact sheet would be product-neutral and allow retirees to place their own value on the key benchmarks as to whether they meet the suitability for their retirement goals.
Still, the latest Treasury proposals fell short of some industry super fund expectations.
Phil Gallagher, policy adviser with Industry Super Australia, which manages collective projects on behalf of a host of industry super funds, said the paper had two significant weaknesses.
“Firstly, it omits any discussion of how the product interacts with the age pension,” he said.
“Consequently, the proposed descriptions will not give reasonable information on actual retirement incomes for most retirees.
“Secondly, the proposals do not deal with the actual levels of member disengagement and the risks posed by sales-driven cultures.
“Retirees should be advised to seek products with good returns and low fees, which are appropriate to their needs, such as those designed by not-for-profit trustees.”
The assistant treasurer said the government remained committed to supporting Australians to maximise their retirement incomes.
“This is the next step in developing a retirement income framework to support consumers to maintain an appropriate standard of living in retirement,” he said.
The Treasury paper would form part of the government’s broader work on the superannuation industry and retirement income framework, he said.
It would support the development of a comprehensive list of income products in retirement, which the government hopes will give retirees added confidence that they will not outlive their savings, while boosting higher living standards.
Treasury will now take comments and feedback on the proposed disclosure measures, their presentation and calculation in public submissions until March.