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Hume and Frydenberg reset super with two buzz words

Adding to the jargon that fills the superannuation industry and confuses most people, two common words have taken on new meanings. They sound innocent, but when a Morrison Government minister uses the words ‘efficiency’ and ‘flexibility’ in the super debate, they now have particular definitions. And in neither case is it the way we previously understood superannuation.

Let’s find out what these words really mean.

Government draws on Retirement Income Review for changes

It’s unlikely to make it on to commercial television or trend on social media, but last week’s 2021 Policy Forum hosted by the Council on the Ageing (COTA) was a surprisingly lively affair. While both Treasurer Josh Frydenberg and Minister for Superannuation, Financial Services and the Digital Economy, Senator Jane Hume, have hinted at changes to superannuation before, they stepped up the rhetoric to another level. Some principles that have underpinned superannuation since the introduction of the Superannuation Guarantee in 1992 are under challenge.

The Policy Forum was also the first time that the three members of the Retirement Income Review appeared in public to explain their work. Chair Mike Callaghan did not hold back, saying that the industry trades off the public's fear of running out of money in retirement, and he audaciously cited former Prime Minister Paul Keating as an example of someone using scare tactics.

Committee members Carolyn Kaye and Deborah Ralston talked about the need for better communication and for retirees to understand a wide range of support measures other than superannuation, such as health, pensions and aged care.

So there was much deflection from the importance of super, and as we have previously written about, the Review encourages retirees to live off their capital and raises the profile of the family home as a retirement asset.

This momentum is reducing the role of income from super investments as the way to fund a retirement, and it’s no surprise that Paul Keating comes out regularly to defend the system he feels is under attack. Two weeks before the COTA Forum, he told the ASFA Conference that it is essential to stick to the legislated increases in SG due to the rapid reduction in the number of workers paying taxes to finance welfare dependants such as age pensioners. He said ‘self provision’ must grow because:

“You are never going to get retirement adequacy off the back of the budget when there are only three taxpayers supporting each retiree.”

Back to Frydenberg and Hume, here are some telling extracts from their COTA speeches, and words on the hymn sheet which have new meanings.

All we need are flexibility and efficiency

The Treasurer and Superannuation Minister are reframing the retirement debate in key ways:

  • Retirees should not have a better standard of living than when they were working.
  • Retirees should spend their superannuation savings before they die.
  • Workers should not be forced to place excessive amounts into superannuation.

Previously, and especially under Keating, the public was encouraged to save as much as possible for retirement to reduce dependency on the age pension. Now, the Government repeatedly uses the words efficiency (or efficiently) and flexible (or flexibility) to justify a new approach.

Let’s check the two speeches for clues. Jane Hume said at the start of her speech (bolding is my emphasis):

“The Review found that ‘more efficient use of savings in retirement can have a bigger impact on improving retirement income than increasing the SG’.”

For ‘more efficient’, read not leaving it behind for the kids. There is less need for SG when retirees learn to live off their capital. She said that retirees on average live on the income generated by super assets and die with 90% of their savings still intact. That is not what superannuation is for.

“Indeed the Review found if people currently in their working lives and currently contributing to super via the SG were able to use their superannuation more efficiently when they get to retirement in the future, they would have higher replacement rates and better retirement outcomes than if the SG was lifted to 12%.”

Come on, folks, it’s obvious. BE MORE EFFICENT.

And what about the other gem, flexible. Here it comes, complete with another ‘efficient’:

“This is why as a government and as an industry more broadly we must turn our minds to more flexible and more efficient products that allow retirees to use their super for a higher standard of living in retirement.”

How is it possible to make people feel more secure about spending when they may run out of money and worry about paying for aged care? Greater efficiency of course:

“But there is also this all-important issue how superannuation is being used. How do we help people have confidence to use their superannuation more efficiently to focus their planning on income streams as opposed to balances?”

So what is this magic pudding of products which funds retirement regardless of how long people live, the so-called CIPRs that are proving elusive for the private sector to develop? We need flexibility:

“We all have roles to play here. The private sector can better innovate and develop flexible products.”

There was also much focus on the Retirement Income Covenant:

At its core it will require trustees to have a strategy to generate higher retirement incomes for their members. The Covenant allows super funds the flexibility to tailor their retirement income strategy to their specific membership base."

Ah, thank goodness. It will be a flexible product to solve the retirement needs of members, but whether anyone wants it is another matter.

Surely the Treasurer would not be left out of the buzz word talkfest. First, he eases in by quoting the Retirement Income Review:

“… a key finding of the Review with respect to superannuation, which is that “If people efficiently use their assets, then with the SG rate remaining at 9.5%, most could achieve adequate retirement incomes when combined with the Age Pension. They could achieve a better balance between their working life and retirement incomes.”

OK, so we only need 9.5%. But he’s the Treasurer, he was never going to allow a humble Super Minister to outdo him on ‘flexibility’. Let’s sneak in five f-words in consecutive sentences in case anyone misses it:

“The Review also identified the trade-off between flexibility and compulsion. The Review noted that our system has considerable flexibility if you want to save more for your retirement. But there is very limited flexibility if a person needs to save less to maintain their quality of life today. The COVID-19 early release of superannuation scheme was an example of how greater flexibility can benefit those that need it. Recognising the trade-offs, we gave Australians the choice of increased flexibility, allowing them to access their savings when they needed them most.”

Josh has not made it to Treasurer by half measures. In fact, far from undermining superannuation by giving people flexibility, the system is improved if personal preferences are met:

“While compulsion will remain an important part of our system, providing Australians with more flexibility should not be seen as an attempt to undermine the system overall. Far from it ... More flexibility also means better accommodating the many different circumstances Australians finds themselves (in) over the course of their lives ... we have introduced several changes over recent years to provide greater flexibility.”

But let’s not be outdone on efficiently either, which by now, we all know what it means – drawing down on capital:

“Treasury has estimated that at the current superannuation guarantee rate, using superannuation efficiently could increase the median person’s income in retirement by over $100,000 compared to how people typically draw down on their superannuation now.”

And there are many times when the Treasurer uses the word ‘effective’ to give the same meaning as ‘efficient’, so chalk that one up too.

What about the increase in the SG?

Besides influencing behaviour with this ‘efficient’ and ‘flexible’ babble, more tangible action by the Government will come soon in the form of a decision on the legislated increase in the SG from 9.5% to 12%, starting 1 July 2021. They find support in the Review to remain at 9.5%. Said Jane Hume:

“In measuring adequacy, the Review used a benchmark of 65-75% of working life disposable income and found most people who start work today would be at or above the benchmark once they retire – even if the SG rate were to remain at 9.5%.”

“Ever increasing amounts of superannuation contributions for your future retirement savings come at the expense of slower wage rises in your working life.”

“In the context of the SG … we must consider the implications of compelling people to sacrifice more during their working lives - by forgoing the wages they could be taking home today – that they could spend today – that they could use to pay off a home today – they forgo all that so that their balances are larger at retirement.”

There is the home coming into play. Superannuation prevents some people owning a home, a point influential Liberal, Tim Wilson, repeatedly pushes. Let's ignore the possibility that releasing billions into an already overheated property market would push up prices and make home ownership even more elusive for many younger people.

Is Hume supported by Frydenberg on the 9.5% sufficiency? Repeatedly.

“The retirement income system is, by definition, designed to provide retirement incomes. But the system cannot solely be about maximising income in retirement. Were it to seek to do so, it would clearly come at considerable expense to individuals during their working lives.”

“For a median earner, increasing the superannuation guarantee could increase their retirement income by $33,000, but lower their working-life income by around $32,000.”

“We must rightly carefully consider the implications of the legislated increase to the superannuation guarantee before 1 July this year – even more so at a time when our economy is recovering from the largest economic shock since the Great Depression.”

“The Review shows that if nothing changes, by 2060, one in every three dollars paid out of superannuation will be part of a bequest. This raises the question as to whether the answer to lifting the retirement incomes of Australians is more superannuation savings or better guidance about how to maximise their superannuation savings during their retirement.”

Let me guess … by using superannuation more efficiently with greater flexibility.

The meaning of efficiency and flexibility

So we now know what efficiency and flexibility mean, and it’s simpler than the jargon that makes superannuation such a complex system. 

Flexibility is the choice to meet current needs and wants by putting less into superannuation for retirement. There’s a hint of not moving to 10% or 12% or alternatively, making the increase optional.

Efficiency (and its close cousin, effectiveness) is drawing down retirement capital (including the home) instead of relying on income from super assets.

After all, as Senator Hume likes to remind us, "It's your money." 

Expect to hear these buzz words a whole lot more as superannuation remains a political battleground.


Graham Hand is Managing Editor of Firstlinks. He was a media guest at the 2021 COTA Policy Forum. 


Geoffrey Hyde
April 07, 2021

Your discussion misses the elephant in the room. As soon as compulsory super came into being the ticket clippers began to look at ways to get part of the action. Initially one or two didn't make much difference, however the number has grown to the extent that 9.5% is not sufficient. The increase is to satiate these leaches. Excessive insurance in super, donations to political parties excess commission rates and charges are all funded by the workers superannuation funds. Almost all charges are at a % of the funds, so increase the funds and all those superfund executives (including union hierarchy) get a bigger bag of gold. By all means increase the super levy but the system must be cleaned out so that the funds remain with the workers, if this is not done 12.5% won't be enough

March 13, 2021

- "Retirees should not have a better standard of living than when they were working." - why ? If anything, when I retire is the time to go and do all the things that I was never able to, such as "fly at the pointy end of the plane" because now I've got the time and the money to do so.

- "Retirees should spend their superannuation savings before they die". Again, Why ? Yeah, that would have worked REALLY well for the Vanderbilts, the Carnegies, the Rockefellers, the Mellons and all the other "old money" families, to "not leave a legacy".

- "Workers should not be forced to place excessive amounts into superannuation". Agreed, but if they don't put the SG up, does that mean that I'm going to get that money (which was mine anyway) back as a pay rise ? No ? Didn't think so.

March 13, 2021

So, do I get an efficiency dividend for being flexible ?

Bill Seddon
March 08, 2021

Allocated pensions were abolished and need looking at again. Capital was being drawn down at a rate based on life expectancy but they got rid them and were replace with using SMSF as a tax minimisation scheme for the wealthy who were told SMSF's are "estate planning on steriods". If super goes in concessionally tax then it must be drawn down in retirement or you loose it. Concessions going to the very wealth will need to come down as it is the government's job to keep society fair & equitable for all.
Yours sincerely
Head in the clouds

March 07, 2021

Senator Hume's position is one of "the private sector can better innovate and develop flexible products" someone else should solve the problem. As a financial adviser I have watched the Liberal Gov and Senator Hume preside over staggering increases in 'red tape' and cost. The ASIC levy we pay has just risen 160%!. Financial advisers are leaving in enormous numbers and we are rapidly reaching a place where only the rich will be able to afford financial advice. Her solution to the problem of ordinary Australian's accessing independent financial advice is one of "development of technology to assist....." ie she hopes someone develop's an 'app'. The sarcasm of your article points to the thinking of ever more people.......what exactly is Senator Hume doing/adding?

March 07, 2021

"Financial advisers are leaving in enormous numbers and we are rapidly reaching a place where only the rich will be able to afford financial advice.":

The accidentally rich may need financial advice. The rich may need legal advice. The advice for the not rich couples is simple and unchanging: 'On retirement at Age Pension eligibility age, withdraw all super, stuff all but $400,000 in home, buy a diversified ETF and apply for the Age Pension.'

March 06, 2021

They just can't leave well enough alone can they!
As a late 30's tradie we use said "I won't put 1 cent more than I have to into super. I don't know what the rules will be when I retire!
It's true, Peter Costello was extraordinarily generous with tax free super on retirement, but they were the rules we set up our SMSF to work by.
No pension or health card for us, fine!
But just stop buggerizing around with it!!!!!!!!!!!!

Graham W
March 07, 2021

You would need more than $2.5 million in financial assets to miss out on the Seniors Health Care Card. It is not asset tested, but taxable income and deemed income.

March 13, 2021

Maybe at that level of income, it’s not that worth it, ergo I don’t want it ?! More trouble than it’s worth.

March 06, 2021

Numbers for home owner couple leaving no capital at 95:
(adjust parameter values according to inclination)

MinimumWageCapital at 67:
= 2*FV((1+(1-15%)*6%)/(1+2%)-1, (67-30), -(1-15%)*9.5%*52*753.8, 0, 0)
= 422324.48 (near Age Pension Sweet Spot)
Capital withdrawal from 67 to 95
= 2*26*711.8+PMT((1+ 4%)/(1+2%)-1, (95-67), -MinimumWageCapital, 0, 0)
= 56,757.81 / y

AverageWeeklyOrdinaryCapital at 67:
= 2*FV((1+(1-15%)*6%)/(1+2%)-1, (67-30), -(1-15%)*9.5%*52*1711.6, 0, 0)
= 958942.13(near Age Pension Sour Spot)
Capital withdrawal from 67 to 95
= 2*26*0+PMT((1+ 4%)/(1+2%)-1, (95-67), -AverageWeeklyOrdinaryCapital, 0, 0)
= 44,831.77 / y

SweeterSpotCapital at 67:
= 56757.81/((1+4%)/(1+2%)-1)
= 2,894,648.31

With current Age Pension payment and Asset Test Taper Rate it does not pay to save more than the Minimum Wage Superannuation Guarantee of:
= (1-19%)*9.5%*52*753.8
= 3,016.26 / y.
... unless more than ~$3,000,000 can be saved by retirement.

Full Age Pension for ALL age eligible - including for ALL who paid for ALL the welfare.

March 06, 2021

When massacring the Centrelink Age pension, via an incredibly harsh Asset Test, ScoMo really insulted a lot of voters a few years ago when he made disparaging remarks about not leaving an inheritance (via super). This thinking from Treasury should be killed off well & truly. If the kids inherit money, & then pay their mortgage off faster, they are then in a position to save more for their retirement. It is truly time we had a clean out of the Canberra Swampocracy. They need to find out how NZ's pension system works & eliminate the distortionary (& expensive to operate) Australian Centrelink Asset & Income Test.

Viv Lawson
March 04, 2021

Sounds like the norm for this poor government, why shouldn’t we older folk and those who follow, have a decent retirement income from both compulsory and salary sacrifice.
They are privileged being in government. How about attacking such rip off schemes as franking credits and negative gearing.

March 05, 2021

If you think that franking credits are a "rip off scheme" then I suggest you don't understand them at all. There's plenty of information on these pages in the past via which you can educate yourself.

March 06, 2021

Yawn, franking credits are not "rip-off schemes" as you call them. This has already been decided, and finally agreed to, by Labor. Not before time. Do some research before making wild claims.

Graham W
March 04, 2021

Jane Hunt may be right in that retirees have been living on their interest and dying with 90 % of their capital intact. That may have been for self funded retirees starting with solid finances. Certainly not the scenario going forward with very low interest rates and much reduced dividends. Increasing age expectancies are a factor too. I think that retirees are entitled to spend their remaining time having a better lifestyle. This especially for those who were self employed working hard long hours in their businesses. I for one with my wife are enjoying a better lifestyle and giving with a warm hand to our family.

March 04, 2021

When all politicians lead by example and adopt the recommendations they put forward to themselves, to show they are following their own advice, then , I may start to take their words seriously.

March 04, 2021

To Ministers Frydenburg and Hume.. how dare you suggest that in retirement we should not enjoy a better lifestyle than when working. For your bloody information we raised our kids etc but I also contributed increasing amounts via salary sacrifice to ensure we could enjoy things like overseas trips etc on retirement, which we did not do when working. We were sacrificing for the future.

March 04, 2021

Too many holes (flexibility) in the system developing. What is the point of the entire system if it isn't done by all.

Another word that features many times in the above is 'could' which means we won't wean people away from the age pension. Will those who set aside more and live a poorer life while accumulating pay less tax in retirement than those who don't? Finance aside numerous studies show too many people won't focus on their long term interests so flexibility will mean a pointless system for what it was set up for.

100% the SG increase will be paused or deleted but the only wild card is Government numbers in both houses.

March 04, 2021

Hi Graham, you forgot to question the mythical wage rises that we’ve given up over the last decade as the SG has not increased.

March 09, 2021

Exactly, super has stayed flat yet there have not been many wage rises amongst the people I know. Funny that, its almost like businesses are just keeping it for themselves...

March 03, 2021

As always, there are some very good points raised by Graham and the general readership in the comments section. It makes me wonder who Josh and Jane actually think they are addressing their comments to. As Graham pointed out in the article, none of this would be trending in social media land (so that rules out the millenials). The Firstlinks readership are certainly well equipped to pick holes in the latest soft sell from the pollies. So if the readership spreads the word around the office, at Probus meetings, etc then it will be fair to say the grey army will not be listening to Josh and Jane either. All that is left is the grey nomads and they checked out years ago when they decided to live in a camper. Besides I don't know whether the "efficiency" argument has been fully stressed tested by the life expectancy tables. Sure, we may live longer, but the downside is the extra financial burden that increased life expectancy brings.

March 03, 2021

Where in all this does Hume or The Treasurer say you can’t save extra if you want - which is what many have been doing for decades to meet their personal objectives for their super. The tone of the article and many of the comments have hints of self-interested financial elites rather than an objective evaluation of the issues?

Allan Gardyne
March 03, 2021

I'd be be flexible and efficient...if I knew how long I'm going to live!

Graham Hand
March 03, 2021

Hi Trevor, that's the point, that the people who are not 'self-interested financial elites' need compulsion to save for their retirement, and (as Keating would say), not increasing the SG will reduce their retirement assets. And then it needs to be left in super to accumulate. Both these 'flexibilities' lead to lower super balances for people who would not otherwise save. The 'self-interested financial elites' can look after themselves.

March 03, 2021

Thank you for synthesising these 2 speeches into a readable article. When I was learning about management we had 2 very different definitions for Effectiveness and for Efficiency. Whilst most of us would agree that superannuation is for the lifetime use of the superannuates, most of us are concerned that we have sufficient savings to allow us to live the life style we have saved for and not to be told what that lifestyle might be. I am appalled that the Liberal Party would be trying so hard to bring us into the Nanny state by dictating how we should spend our life savings. I think it is most concerning when a labour leader (Paul Keating) has to stand up for free market economics when this should be the political ground of the Liberals. Keep your grubby hands of the few economic programs that actually work and has taken the pressure off the need for a large public funded pension fund that is and is likely to always be unfunded.

March 03, 2021

We forget:

In the good old days with a Defined Pension Scheme both you and your employer contributed, frequently somewhere north of 10% to set aside the Capital necessary to pay your [sometimes] indexed pension. If you died early the "pool" won. If you left your Employer pre retirement, the "pool" also won. Either way you lost unless you reached 60 something with your employer. Inflation of the 1970's killed that concept - too much risk for employers - other than Governments!

Along came Superannuation - portable with contribution rates rising to 9%. If you wanted to be independent in retirement exactly the same amount of Capital need to be accumulated as per the old Defined Benefits Scheme - with a twist - now it was your personal responsibility. Was 9% enough - any Actuary will tell you NO - 12-15% more likely

Then Costello, rolling in Cash, made income in retirement tax free AND eliminated the maximum withdrawal limits AND made it possible to withdraw your entire Super on your deathbed thereby avoiding any tax on what remained. Three Canberra own goals without which, this whole noisy current debate would, I suspect, not be happening!

Key questions remain unanswered:

1] When will you die? Tell me the date and I will give you a perfect plan!
2] Who do you trust to look after you in your dotage? Govt [drowning in debt] or yourself? Tough question!
3] How much do you need to save to be independent in retirement? Personal view 9% will not get you there 12% might
4] Is it any business of Canberra's as to what you leave behind as a bequest? Personal view No

March 04, 2021

My father-in-law is still in the “good old days” on a Def Ben super pension. Retired on 60th b/day 1990 and now 90.5yrs old. Wife just passed but his super pension amount stays same, however he lost his part Govt pension. If he had died first she would have received 66% until her death. However, if they’d both died soon after retirement, kids (beneficiaries) get zilch. God Bless his longevity :) It was a “lottery” type system but worked a treat for him.

Robert Thie
March 03, 2021

The aim of the game is to transfer YOUR money into THEIR control.
THEY are very good at the game, because THEY make the rules.
Drawing income based on the value of the family home, is borrowing money, also known as a loan.
A loan can ( and will ) be called in.
Any which way, you lose!

Roy Taylor
March 03, 2021

If politicians received the same rate of super that the rest of us mere mortals received and not get 24%, + a parliament indexed pension + being able to pick up their pension and still collect a private salary after leaving there post.
What good dose it do having some one with all of that largess tell us mere mortals what to do with our money.
NOW IF WE ALL RECIEVED THE SAME SUPER FUND % and pensions then better decisions would be made .
If back in the 90,s it was 6% from the employer, 6% from the employee, 6 % from the gov, there would be PLENTY of money being spent , and the pension would be there for ones who fell through the cracks.

March 03, 2021

Did Hume and Frydenberg address Keating's argument that, in an ageing society, increased reliance on the age pension (and concurrent pressure on PBS and Medicare) at the expense of super, is not going to be sustainable?

Graham Hand
March 03, 2021

Yes, Carl, Jane Hume made a commitment that "the Age Pension will always be there". Here is another extract:

"The fact is our system is designed to enable retirees to access both super and a variable amount of the Age Pension, with the pension scaling up as super balances are drawn down.

Retirees can have confidence to use their retirement assets knowing that the Age Pension will always be there to support them should their savings not last as long as they planned.

The Age Pension is far from being just a social safety net. It is a retirement income pillar of its own — received by around 71 per cent of Australians over 65.

The Age Pension provides an important form of insurance against longevity risk and sequencing risk for retirees."

Geoff R
March 03, 2021

>The Age Pension is far from being just a social safety net. It is a retirement income pillar of its own — received by around 71 per cent of Australians over 65.

And herein is the problem. The Age Pension *should* be a social safety net for those who, for whatever reason, were unable to work in their younger years. Everyone who has had a job of average pay or more should be able to support themselves in retirement.

The trouble is many (most?) people are not interested or willing to save for their future post-work years. So we need compulsorary savings (like superannuation) to force them.

Consider two people who earn similar amounts over their working life. One lives frugally and saves while the other has a lavish lifestyle but minimal unforced savings. Come to retirement age and we penalize the saver ("no age pension for you as you are rich!") while we reward spendthrift ("here is your pension and all the health and other perks that go with it...").

The system is broken.

One option would be to have a universal age pension (no means testing) so our saver is not punished.

Another is higher forced savings (say a super rate of 18 or 20%) and certainly no "early release" schemes unless they are viewed as a "loan" that needs to be repaid a bit like the old HECS debts.

We certainly need a safety net for those who have not worked (and for those who have had very poorly paid jobs). Maybe that would be 10% of the aged population - but when more 70% are receiving it then it is time for a rethink.

TJ khoury
March 03, 2021

Wow, love the sarcasm you are spot on, typical government BS and spin, no government cares about their constituents, but how they look, the government tries to make out they care to be reelected, the aim is how the government can increase their share of the growing super pie, like so many other parts of the system including tax has become so complex that even those who wrote or write such policies have no idea what they are going on about including the experts, in end the more complex the less anyone knows or understands anything.

If the government and the so called experts just made everything simple people of all walks of life could understand what and how to achieve their own goals to live comfortably in retirement no matter how poor or wealthy they are, leveraging on either super or the aged pension.

Please keep up the buzz words that have no real meaning.

March 03, 2021

Paul Keating started Super as he stated that there was no guarantee that there would be a pension into the future. He still has this view and all babyboomers listened and accumulated superannuation in the belief that they would not get a pension. So the house was for your aged care and super for living until dead.

Now Government is saying that the pension will be around and that you can live in retirement on a combination of your 9.5% superannuation + house and then pension when (presumably) you run out of money in your later life.

If this is the new model, then the practicals of this model must be demonstrated to millenials and younger to demonstrate how it works. The Effectiveness is the products to achieve this.

March 03, 2021

March 4 2021
After paying $100000 in death duties in 1974 I don't like government wanting to take any more from me. Perhaps they could give us back the $60+billion Costello gave the future fund to invest in investments , that SMSF cannot. This money was due to be repaid in 2020 but the government extended that to 2026. Perhaps the polies thought of THEIR life styles in retirement. Perhaps there should be another rally like we had regarding franking credits

P Wilson
March 03, 2021

And please don't forget the billions of dollars that major financial institutions including our wonderfully trustworthy banks are continuing to siphon off the superannuation nest egg due to poor government policy, poor oversight and a complete lack of financial education starting in our schools and continuing through life.

March 03, 2021

I think you will find that all the banks have now exited wealth management.

March 03, 2021

What they are saying is, "Don't worry about running out of money in retirement. The government will provide you with a pension and aged care." I'm sure prospective and current retirees are totally comfortable with that, given the findings of the Aged Care RC.

March 03, 2021

I wonder what this means, "higher replacement rates" ?

Graham Hand
March 03, 2021

Hi Ray, the 'replacement rate' is the proportion of pre-tax income available to a person in retirement. So someone on $50,000 a year as a worker with a replacement rate of 70% would 'have' $35,000 in retirement. Jane Hume is saying if retirees draw down on capital, they will have have more to spend than someone who relies only on the income generated from a 12% SG contribution, hence 'higher replacement rates'.

Ray Graham
March 06, 2021

Thanks Graham I understand now.

March 03, 2021

Fiddling with the SG levers will do nothing to stop retirees living off the income generated by their retirement assets, including super.

If there were actually decent retirement financial products available for sale, then perhaps that would reverse the trend, but there aren't, and so the show goes on.

Perhaps if everyone did spend all their super in retirement, that might be the thing that would actually drive real estate prices down? Who knows? I hope the people doing all the bequesting are skipping a generation - inheriting $500K + from your parental units when the last of them shuffles off the coil - when you're actually in your 60s yourself - is nice, but it's not going to help the next generation get into the housing market much.

I forgot to have children, so I can spend all mine, so long as I have enough left to pay for staff to do all the things that the kiddies I didn't have would normally do for me in my dotage.

March 03, 2021

Thanks Graham. Good logic! If, as Senator Hume notes, it's your money then it's obvious that the majority of retirees seek to live off the income of their Super capital to preserve the capital (for later life needs or estate pass on). It's their money after all and prudence might be an apt buzzword here ?! I can't see any newfangled products encouraging draw down of capital altering that retiree mindset.


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Have value investors been hindered by this quirk of accounting?

Investments in intangible assets are as crucial to many companies as investments in capital equipment. The different accounting treatment of these investments, however, weighs on reported earnings and could render ratios like P/E less useful for investors.

Investment strategies

Investors are threading the eye of the needle

As investors cram into ever narrower areas of the market with increasingly high valuations, Martin Conlon from Schroders says that sensible investing has rarely been such an uncrowded trade.


Persistent, but not permanent

There is universal consensus that the Earth is experiencing climate change. Yet there is far more debate about how this will impact different economies across the globe. New research sheds more light on the winners and losers.

SMSF strategies

How super members can avoid missing out on tax deductions

Claiming a tax deduction for personal super contributions can end in disappointment if it isn't done correctly. Julie Steed looks at common pitfalls and what is required for a successful claim.

Investment strategies

AI is not an over-hyped fad – but a killer app might be years away

The AI investment trend looks set to continue for years but there is only room for a handful of long-term winners. Dr Kevin Hebner also warns regulators against strangling innovation in the sector before society reaps the benefits.


Why certainty is so important in retirement

Retirement is a time of great excitement but it is also one of uncertainty. This is hardly surprising given the daunting move from receiving a steady outcome to relying on savings and investments.


This vital yet "forgotten" indicator of inflation holds good news

Financial commentators seem to have forgotten the leading cause of inflation: growth in the supply of money. Warren Bird explains the link and explores where it suggests inflation is headed.



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