Retirement income complexity identified by Australian Government

Author name:: By Lindsay Richardson
Job title:
Date posted:: 23 February 2021, 5:00 PM

Are you in the 12.8% of Mackay’s population that is over 65, or even the 31.7% that is over 50? Now, is the time to consider how much you know about your future retirement.

Whether you are considering ramping up your retirement savings or cutting back to ‘part-time’, you will at some point require financial advice or face the complexity of retirement income on your own.

Source: Australian Bureau of Statistics – 2016 Census.

Retirement Income System Review

The Australian Government has recently completed a review of the retirement income system in July 2020 to assess how it will perform in the future as Australians live longer and the population ages.

Mackay has a median age of 36 so for most of our community, the urgency of retirement advice is low and many would not even given retirement a second thought.

It was highlighted in the report that most people who retire ‘early’ or before reaching age pension age usually do so out of necessity and not by choice. People in manual occupations tend to retire earlier than those who work in office environments.

In my opinion this may have something to do with the air-conditioning and Mackay’s humidity. The high saturation (19.8%) of Mackay’s workers engaged in technical and trades occupations means that the majority of Mackay residence should be considering financial, and at the very least wealth protection, advice in the event of a ‘forced’ early retirement.

The review, which was commissioned following a recommendation by the Productivity Commission, was not asked to make recommendations or propose changes to policy settings. However, it did uncover evidence that many aspects of the system need improved understanding.

Key observations and overview

The need to improve understanding of the system

Dealing with complexity. Complexity and uncertainty, a lack of financial advice and guidance, and low levels of financial literacy are impeding people from understanding the system. As a result, some people fail to adequately plan for retirement and make poor decisions about how to use their savings in retirement.

The nature of retirement income. Most people die with the bulk of the wealth they had at retirement intact. It appears they see superannuation as mainly about accumulating capital and living off the return on this capital, rather than as an asset they can draw down to support their standard of living in retirement. The family home is an underutilised source to support living standards in retirement.

The nature of retirement. The nature of retirement has changed. For many, the transition from full time work to permanent retirement is gradual rather than abrupt. Some people retire more than once, others are involuntarily retired. There is no mandatory retirement age for most workers.

The objective of the system. The retirement income system lacks an agreed objective. Differing views on the appropriate level of the Superannuation Guarantee (SG) rate stem from different views about the system's objective.

Role of the pillars. The ‘pillars’ of the retirement income system are commonly seen as being the Age Pension, compulsory superannuation, and voluntary saving (including housing). Some see housing as a separate pillar.

Dealing with diversity. The retirement income system covers people in very different circumstances: different incomes, time in the workforce, employment situation, capacity to save, home ownership status, risk preferences, financial literacy, partnership status and life events. While the system may provide adequate retirement incomes for many Australians, there is uncertainty about if and how it can compensate for those who may fall short, such as women, lower income renters, individuals not covered by the SG, involuntary retirees, Aboriginal and Torres Strait Islander people and those with disability.

Source: The Australian Government – The Treasury.

What does this mean for you?

This review has identified the need for greater financial advice for consumers, particularly when it comes to retirement planning, to help people understand the complex laws and regulations that are already in place.

Without this financial advice from qualified financial planners, you might be missing out on maximising your retirement potential or protecting your wealth should retirement come earlier than expected.

Speak to one of our qualified and experienced Morgans Mackay advisers today to define your own retirement journey, by calling (07) 4957 3033 or visiting morgans.com.au/mackay.

Find out more

Finding the right platform to complement your current and future retirement objectives can be difficult.

Speak to one of our qualified and experienced Morgans Mackay Advisers today to define your own retirement journey.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited (Morgans) AFSL 235410 ABN 49 010 669 726 as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.