Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 254

Budget's focus on retirement’s next challenge

Changes announced in the 2018 Federal Budget take us a step forward in ensuring the superannuation system achieves what it was set up to do: provide greater security of income for people in retirement while reducing the burden on taxpayers of supporting retirees.

The Budget promised a new retirement income framework which aims to boost living standards for retirees and expand the options available to them by requiring super fund trustees to offer new comprehensive income products.

A framework is needed because our defined contribution system asks individuals to manage financial risks beyond their capability. Despite the complexity involved, Australians have proved reluctant to pay for advice, a prospect that only looks unlikely to diminish given revelations at the Royal Commission.

Help needed when employment income ceases

The irony is retirees have never needed more help managing the heightened risks they face without the security of employment income. These include unfavourable investment returns close to or in retirement (sequencing risk), outliving their savings (longevity risk), loss of purchasing power (inflation risk) and unexpected health and aged care needs (event risk).

Managing these risks involves complicated trade-offs that are highly specific to each member’s circumstances and preferences. Yet most are ill-equipped to do this. And the system is focussed on the accumulation of assets with little support during the drawdown phase.

Compulsory super and default funds were designed to overcome behavioural and other barriers that prevented people from saving. But those biases do not suddenly self-correct when people reach retirement age. After all, having been in default vehicles throughout their working lives, why would people suddenly be able to switch on and navigate even more complex variables?

The answer is to develop our contributions-based system so that it delivers outcomes akin to a defined benefits framework designed around individual needs. At a minimum, a mass-customised solution will take account of each member’s age, gender, health status and debt, while providing couples the option of a reversionary benefit. To ensure income stability over retirement, the solution also should take into account pension entitlements.

Given limited access to financial advice, trustees will need improved products and a scalable process to guide or nudge members towards better retirement outcomes. To ensure members’ interests are served, super funds will have to make major investments in governance, people, systems and technology, including decision support systems.

It’s arguable that our intensely regulated industry, conceived via government mandate, lacks the required level of innovation, entrepreneurialism and vision to meet the needs of the bulge of baby boomers now entering retirement. So, again, there is a role for the government to facilitate market development by setting the rules of the game.

The Budget is a step in this direction

The Budget means superannuation fund trustees will be required to consider the retirement income needs of their members and develop a strategy to help members achieve their retirement income objectives.

Alongside the requirement to offer comprehensive income products, the government also announced new means testing rules that remove important impediments to development of new income stream products to better manage longevity and sequencing risk. Not only are such solutions needed for disengaged super fund members, they may also provide an escape route for SMSF trustees looking for a set-and-forget secure income stream that kicks in during their advanced years.

For the nation, these changes represent a substantial, long-term investment in making our market work more effectively, making our retirement income system more sustainable and making the lives of millions of Australians better.

The CSRI Leadership Forum on 31 May 2018 will bring together leaders in public policy, industry and academia for detailed discussions about what these changes mean and how to take them forward.

 

Patricia Pascuzzo is Founder and Executive Director of the Committee for Sustainable Retirement Incomes (CSRI), an independent, non-partisan and non-profit think tank which is holding its leadership forum in Canberra on 30-31 May 2018 https://csri.org.au/events/2018-leadership-forum/


 

Leave a Comment:

RELATED ARTICLES

How decumulation in retirement differs from accumulation

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Supercharging the ‘4% rule’ to ensure a richer retirement

The creator of the 4% rule for retirement withdrawals, Bill Bengen, has written a new book outlining fresh strategies to outlive your money, including holding fewer stocks in early retirement before increasing allocations.

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Latest Updates

Weekly Editorial

Welcome to Firstlinks Edition 628 with weekend update

Australian investors have been pouring money into US stocks this year, just as they start to underperform the rest of the world. Is this a sign of things to come? This looks at 50 years of data to see what happens next.

  • 11 September 2025
Exchange traded products

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement

We need a better scheme to help superannuation victims

The Compensation Scheme of Last Resort fails families hit by First Guardian and Shield losses, as well as advisers who are being wrongly blamed for the saga. It’s time for a fair, faster, universal super levy solution.

Investment strategies

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Economy

How bread vs rice moulded history

Does a country's staple crop decide elements of its destiny? The second order effects of being a wheat or rice growing country could explain big differences in culture, societal norms and economic development.

Investment strategies

Small caps are catching fire - for good reason

Small caps just crashed the party like John McClane did in the movie, Die Hard - August delivered explosive gains. With valuations at historic lows, long-term investors could be set for a sequel worth watching.

Defensive growth for an age of deglobalisation, debt and disorder

Today’s new world order appears likely to lead to a lower return, higher risk investment environment. But this asset class looks especially well placed to survive, thrive, and deliver attractive returns to investors.

Economy

Will we choose a four-day working week?

The allure of a four-day week reflects a yearning for more balance in our lives. Yet the reliability of studies touting a lift in productivity is questionable and society may not be ready for such a shift anyway.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.