Money Your Super The superannuation system is not designed for the ageing population: Jeremy Cooper
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The superannuation system is not designed for the ageing population: Jeremy Cooper

Super system.
The current super system won't serve women workers as they age. Photo: Getty
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Australia’s superannuation is out of date and not designed to deal with  the ageing population, according to Jeremy Cooper, who chaired the 2009 super review.

“It’s an inconvenient truth, but as Paul Keating noted some years ago, the system he conceived was for the 55-to-75-year-olds. People are now typically living into their late 80s, more than nine years longer than they did in the 1990s.

“That means they’re exposed for longer to the risk that their hard-earned super savings won’t do what they were intended to do – provide them with a reliable income for their increasingly long lives,” Mr Cooper, who now works with annuities provider Challenger, told The New Daily . 

Earlier in the week Mr Cooper called for super funds to operate more like banks and put reserves aside to guarantee incomes for people in their late retirement years.

Currently many people spend their super before they die and live out their final years on the age pension. Mr Cooper’s proposals would involve people taking out annuity-type products that would last for their whole retirement.

However Catherine Nance, an actuary and partner with PWC, said the proposal didn’t make sense for many people. “A lot of people are retiring with relatively low balances; for industry fund members it is often below $100,000,” she said.

“They’re not going to be buying an annuity as it’s not effective. For people with low balances the age pension is effectively an annuity as it guarantees an income,” she said.

Ian Yates, CEO with lobby group COTA Australia, said Mr Cooper “is pointing out a real issue. We’ve been saying for a long time that the super system is focused on the accumulation phase (when members are working) and not planning ahead for the pension phase while longevity has increased.”

Matt Linden, public affairs director with Industry Super Australia, said the super system needed to be improved.

“People are living longer but I disagree that annuities are the solution,” he said. “The Government Actuary has noted that annuities are costly for what they deliver and not appropriate for most people.”

Annuities are an income protection method where people put aside capital to pay for a future income stream. Mr Linden said people with small amounts of money would not be able to buy a reasonable income stream for a reasonable price.

Paul Versteege, policy coordinator with the Combined Pensioners and Superannuants, said, “balances are too low for many people to buy annuities. It makes sense for many people to pay off their mortgage, buy a new car or maybe have a holiday with their super”.

“As the system matures and people have larger balances then the super funds will change their ways and offer more retirement products,” Mr Vesteege said.

Martin Fahy, CEO of the Association of Superannuation Funds of Australia, said super funds would develop more annuity-type retirement products when doubt about how they will fit in with the age pension assets test is cleared up.

“It will be important the means test treatment for the Age Pension for such products is appropriate and the Government is currently consulting the sector on what the means test settings should be,” he said.

Mr Linden said: “Key structural issues in the super system need to be dealt with. The super guarantee should be boosted to 12 per cent or even beyond as quickly as possible.

“The structure of tax concessions needs to change to benefit low income people, particularly women, who are living longer than men and have lower balances,” he said.

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