Speaking on a panel at the Financial Services Council Summit in Sydney, Challenger retirement income chair Jeremy Cooper discussed Australia’s retirement income system – and why legislative frameworks around it are falling short.
When asked about the Government’s role in the Retirement Income Covenant, Cooper said that while the financial services industry “is, to be unkind, built on regulatory intervention and often needs it,” in this case it was waiting for the law to catch up.
“And now that we’re developing it,” he continued, “the UK and the US are watching us. It’s chillingly similar in the US, with their defined contribution system, to what’s going on here. And in the UK, they’re looking at how to turn a DC system into a real retirement income system.”
On the way, though, Cooper recommended avoiding broadening the retirement income review too far. “Let’s exclude the efficiency of super,” he said. “That’s been done too many times. There are certain things that if you include in the covenant – well, it’d be like a black hole, sucking all the spaceships into it, and it would stall the progress the industry is trying to make in this area.”
Far more crucial than reviewing super again, he argued, was something quite simple: defining what retirement income actually is.
“At this point,” he said, “it’s just words. If the purpose of super bill ever sees the light of day again, it would be a good time to define that. As part of that, you’d have the concept of consumption of capital, some of that income would be lifetime income, some would be late-stage decline and so on. Currently, it’s too loose.”
This is a significant issue for our system, he said, because “handing back money in large quantities is not something the machine does very well. We’ve had very entrenched ways of looking at things, which is why you need the legislative direction and signposts about where this is supposed to be going.”
This issue, he said, extends to advice. He noted that “we haven’t treated retirement advice as a separate skillset from the overall advice frame, which is a bit of a problem When I see the courses advisers are doing, very little of it covers some of the basic tenets of retirement income.”
Overall, Cooper said the industry and Government need to come together and make some hard decisions about how the system is going to be able to adjust to a significant cohort entering retirement.
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