Super savers win, retirees lose

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The 13th annual FSC CEO Report had some good news for the superannuation sector, with CEOs less concerned about consumer confidence within the sector, but Jeremy Cooper says it's not enough.

Strong market performance and investment returns have returned a lot of confidence to the superannuation sector over the past financial year, with many people making up the reduction in value that they saw over the GFC.

However, Challenger chairman of Retirement Income, Jeremy Cooper says that more than a million Australian retirees are “still likely to be in the red”.

Cooper says that what is good news for super savers isn’t necessarily good news for retirees, and a four year average of 8.8% p.a. is not enough if you’ve been using super as a source of income in retirement.

“Because they’ve been drawing income each year, retirees are earning this sort of return on a lower capital base after being hit by the GFC.

“They are highly unlikely to ever recover their GFC capital losses”.

Most CEOs interviewed for the FSC Report called for a period of stability with no changes in superannuation rules, saying that this would benefit retirement savings policy. Some pointed out that it is not even the rule changes that are deterrent, but the constant concern that changes will be made that could leave investors at a disadvantage.

ASFA CEO Pauline Vamos says, “What is important, particularly when looking at the super system, is that people have a lot of notice as to what is coming."

“People understand that as the world changes and society changes and as the system matures, it has to be adjusted. What they don’t understand, is sudden changes, and that’s what we’ve got to change.”

While Vamos agrees that there is a need for stability, she says that the income stream product market needs to be opened up, and a lifetime cap may need to be considered. There also needs to be an adjustment to encourage income streams, she says.

Vamos also predicts a move towards APRA-regulated funds. She says that innovation in the sector means people can have the control and choice available to SMSFs, through an APRA-regulated fund.

“People will start to add up the costs and compare the costs and I think that is a good activity as well. There’s no doubt the cost of insurance, particularly life insurance and disability insurance, is cheaper when you’re in a group arrangement, because you’ve got the ability of scale,” says Vamos.

“The message we’d like to give is really have a proper rethink, take a new look at some of the opportunities and products out there.”