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Special Feature: Actuaries Institute Retirement Policy Review

The recently released Actuaries Institute review into Australia’s Retirement income for Australians, titled “Securing Adequate Retirement Incomes for an Ageing Australia” was conducted over the course of the past year and involved more than 200 actuaries who provided thorough research and recommendations.

The review assessed the current superannuation guarantee level and what the optimal level of superannuation should look like based on an individual’s personal circumstances in order to achieve a desired level, use of the family home in retirement, how advice can result in better use of superannuation savings and the Age Pension means test. The review concluded “Australia’s retirement system should be fairer, simpler and more efficient while the role of guidance and advice should be enhanced”.

Special Feature: Self Managed Super Funds

Self-managed super funds (SMSFs) are Australian Taxation Office (ATO) regulated funds. Generally speaking, SMSFs are private superannuation funds. They are required to have four or fewer members, all members are trustees or directors of the trustee company, no trustee of the fund receives any remuneration for their services as trustee and no members are employees of other members.

Having an SMSF can provide greater control for some individuals, having full oversight into all aspects of your super, rather than relying on an industry or retail fund to manager your super. While this may sound appealing, managing super independently, it does involve experience, education, management, compliance and administration costs as well as a detailed oversight into the superannuation environment.

While professional super funds are regulated by APRA (Australian Prudential Authority), SMSFs are regulated by the ATO, meaning that regulatory oversight differs. For example, in the instance of investment theft or fraud, funds regulated by APRA can apply to the government for compensation which if funded via an industry levy, whereas SMSFs cannot, with the pursuit of compensation coming out of your own expense.

Special Feature: Global Pension Assets

Recent studies conducted by Willis Towers Watson into Global Pension Assets concluded that Australia has been one of the worlds most successful pension markets, with assets under management increasing on average 11.3% p.a. over 20 years to 2020 in USD terms. This figure represents fund returns and mandatory/voluntary contributions into the superannuation system.

The Global Pension Study covers 22 major pension markets, Australia, Brazil, Canada, Chile, China, Finland, Germany, Hong Kong, India, Italy, Japan, Malaysia, Mexico, Netherlands, South Africa, South Korea, Spain, Switzerland, UK and the US (the P22.) As at December 2020 the P22 had roughly US$52,522 billion in pension assets, which accounts for roughly 80% of the GDP of these countries. As shown in the below table, pension assets as a percentage of a countries GDP concluded that The Netherlands had the highest assets/GDP ratio, representing 214%, with Canada coming in second with 192% followed by Australia at third, with 175%. It can also be seen that China had the lowest assets/GDP ratio, representing only 1.9% of GDP. In terms of total pension assets, the US clearly has the largest size, representing 62% of the total P22 assets, followed by the UK and Japan, with Australia coming in at number five.

Special Feature: Retirement Income Review – Superannuation Guarantee

Whilst the recently released Retirement Income Review didn’t produce any specific recommendations, it did propose and sound out future possibilities and the state of the current compulsory super scheme. Research conducted within the report demonstrates that the current Australian retirement income system is effective and sustainable. A big talking point from the review, and one which has been discussed at length is the proposed increase to super guarantee whereby under current rules, employers must pay 9.5% of their employees income into super, with legislated increases to 12% on 1 July 2025; the incremental increases can be see below.

Special Feature: The Impact of the Early Release Superannuation Scheme

The long term impact to individuals superannuation accounts due to the COVID -19 pandemic will not be known for many years to come. Building a nest egg for retirement is a compulsory requirement for working Australians, foregoing money now for the future is designed to help Australians become self-sufficient in retirement. The impact of removing superannuation savings now, and potentially forgoing 5 to 7 per cent annual compound returns over the long term may have material impacts to a member’s final balance in retirement.

Recent data released comprising the early super release shows that people aged between 25 to 34 drew down the largest portion of their super balances, drawing almost 35%, followed by people aged between 35-44, drawing almost 20% of their total super balance. There are many reasons why individuals have had to dip into their super balances, ranging from insufficient support, not being eligible for Jobkeeper or not being eligible for Jobseeker. A quote from Eva Scheerlinck, chief executive of the Australian Institute of Superannuation Trustees (AIST) in the Australian Financial Review made mention to the shortfalls “The early release scheme, unfortunately, forced many people to choose between poverty now or poverty in retirement”.

Special Feature: COVID – 19 Early Access to Superannuation

Due to the COVID – 19 pandemic, the Australian government earlier this year announced that Australians experiencing financial stress due to the coronavirus outbreak may be eligible to early access of their
superannuation. The temporary announcement will allow superannuation account members to access up to $10,000 of their money this financial year, and a further $10,000 after 1 July 2020 (until 30 June 2021). These funds would not be taxed after they are withdrawn.

The ATO states that to apply for early release, “you must satisfy any one or more” of the following requirements:

  • Australians experiencing financial stress due to the coronavirus outbreak may soon be able to access a portion of their super
  • Be unemployed
  • Be eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance
  • On or after 1 January 2020, either:
  • you were made redundant
  • your working hours were reduced by 20% or more
  • if you are a sole trader, your business was suspended or there was a reduction in your turnover of 20% or more

Since the announcement, data compiled by the ATO confirmed there has been approximately 2.12 million Australia’s who have accessed their super early, with the average withdrawal payment totalling $7,473. In total, APRA figures confirm roughly $14.8 billion has been withdrawal from the retirement scheme.

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