Improving the retirement phase of superannuation
On 20 November 2024, the Albanese Government announced a suite of policy reforms targeting the retirement phase of superannuation, including a proposed legislative change that will allow product providers and funds to offer new retirement product features. The policy changes include four measures designed to complement the Delivering Better Financial Outcomes Package reforming financial advice laws.
Treasurer Jim Chalmers said the new reforms ‘will help give retirees peace of mind and provide more support to navigate retirement’.
The measures focus on guidance and innovation, representing a step forward in ensuring Australians not only save for retirement but also have access to the tools and products they need to make the most of their super.
1. Improving the existing innovative income stream regulations - the first set of measures aim to revamp the existing regulations, allowing funds to offer product features such as money back guarantees, the ability to purchase income streams in instalments instead of an upfront lump-sum, and ‘fairer treatment’ for couples by considering joint life expectancy. The changes are expected to come into effect from 1 January 2026 after industry consultation.
2. By expanding resources on the MoneySmart website, consumers would have access to additional tools designed to help them understand how income streams can help to meet their expenses in retirement and highlight different ways to draw down their retirement savings. These enhancements will be rolled out from the first half of 2025 in conjunction with an ASIC consumer education campaign.
3. A set of voluntary best practice principles will be introduced to work in conjunction with the Retirement income Covenant. The principles aim to ‘articulate the core characteristics of well-rounded retirement products that funds can draw on when developing their product offerings and strategies[1]’. Consultation on these principles will be developed by Treasury in consultation with industry working groups and the broader community. Draft principles will be released for public consultation next year.
4. A Retirement Reporting Framework is intended to commence in 2027. APRA will collect and publish data on an annual basis using specific metrics and processes to be determined by Treasury via a public consultation next year.
According to the Treasurer[2], more than 2.5 million Australians are facing retirement in the next decade, and within two decades, most people retiring will have been accumulating superannuation at 9 per cent or more annually for the duration of their working lives.
The introduction of these reforms presents a welcome shift towards broader education speaking to some of the challenges Australians may face in retirement. This should drive more Australians to seek financial advice as they realise ‘advisers have the expertise and the access to opportunities to help them achieve their goals[3].’
With the Australian Institute of Health and Welfare stating, ‘over the past 5 decades, life expectancy in Australia … has increased at a rate of 3 months per year since the start of the 20th century[4]’, early engagement around the concept of longevity should improve retirement income outcomes by bringing the conversation around longevity risk to the forefront.
The ability to offer a money-back guarantee may broaden the target audience for some income stream products especially for clients inclined to leave a bequest. The ability to purchase an income stream in installments is also appealing and is likely to support bringing forward the retirement planning conversation. For example, a client may be able to invest say, 5% of their accumulation phase super balance each year into an investment towards a lifetime income stream which can generate guaranteed lifetime income after retirement.
We will provide further updates as legislation is introduced and passed.