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Solutions to unite the three pillars of retirement funding

As we take stock of the retirement industry, and where we find ourselves as 2021 comes to a close, it’s clear that the long-term outlook for retirees has changed over the past couple of years. Not only has Covid threatened the health of our seniors, but it has also made the value of the family home in providing lifelong housing and a haven more deeply felt.

Combine that with low term deposit incomes, portfolio volatility, and a broad consensus around a lower growth long-term future, and it has made planning for retirement a real challenge. Now, as never before, it is clear that fear undermines retirement outcomes and that confidence is the main ingredient in a good, long life.

Retirees need trustworthy, easy to use, integrated education and solutions that delivers both faith in their savings and safe, easy means to release them.

The Household Capital Your Life Choices survey shows that 85% of retiree respondents are unaware of the three pillars of retirement funding (the age pension, compulsory superannuation and voluntary savings) and only 23% of respondents were aware of the Pension Loan Scheme.

It also showed, even with a relatively digitally-literate respondent group, that 58% of respondents were unsure when asked if they understood the funding options available to them. 

Household Capital recently hosted the 2021 Three Pillars Forum, bringing together industry experts from Australia and around the world. Despite disparate professional backgrounds, the panellists agreed that uniting the three pillars of retirement funding was essential for the consumer, the economy and the retirement industry.

The underspending Australian retiree

CoreLogic figures show the Australian property market smashing new records, with a total residential asset value exceeding $9 trillion. On a conservative estimate, Australian retirees are holding residential property assets of more than $1 trillion dollars.

Senator Anne Ruston, Minister for Families and Social Services, has highlighted the plight of asset rich, cash poor Australian retirees, saying:

“We want our senior Australians to enjoy the best quality of life during their retirement and one of the key factors in achieving this is financial independence. To improve the welfare of our older Australians, these three pillars must work together and be fit for purpose. With housing prices increasing significantly in recent years, we are seeing many of our senior Australians paper millionaires with limited ability to access the benefits of their appreciating assets.”

Retirees do not have a full picture of their assets and ability to access their wealth and this is a major contributing factor to their hesitancy to spend. We should celebrate and take confidence in the fact that Australians are the wealthiest median retirees in the world. Instead, the 2020 Retirement Income Review noted widespread underspending and lack of confidence in retirement.

Ben Hillier, General Manager Retirement Solutions at AMP, uses a powerful analogy to describe the information available to retirees:

“[We are] putting someone into a lifeboat, when they're expecting to go on a retirement cruise. They're perhaps thinking that it's going to be the cruise of a lifetime. We whack them in a lifeboat, load them up with lots of provisions and push them off and say, ‘There you go, enjoy your retirement.’”

“They say, ‘Well, how long do I need to make these provisions last?’. ‘Well, you figure it out!’. ‘How much do I consume?’ Well, it's entirely up to them. We're putting all the risk onto the retirees. Which is just far too much to expect for people who aren't finance professionals.”

The Australian economy, a trillion dollars boost

In the UK and Canada, the market for reverse mortgages and home equity release is more advanced than in Australia and gives us a reasonable expectation of how our market may develop.

James Hickey, Partner at Deloitte, said at the Forum:

At the moment, the market has really only penetrated around 1-1.5% of the potential addressable market. Even if it went up to the area where the UK and the US are, with around 5% or more of the retirees using the product, then you could see a three to fivefold increase in the current market sizes of $3 billion to $10 billion to $15 billion, if it got to the same level of uptake amongst retirees.”

Putting that money into retirees’ wallets has immediate benefits for the local economy. Per Capita CEO Emma Dawson said:

“Housing is a productive asset in that it provides shelter, but it's not moving through the economy. So if that money is released, we know that older people will tend to spend it in their local communities. So particularly in suburban and regional areas, if there's excess disposable income for older people, they'll spend it at a local café, local shops, taking the kids to the cinema, that then creates jobs in the economy, and it does reduce the inequality of labour and of wages as well.”

Legal & General CEO Andrew Kail has seen the benefits of releasing home equity in the UK, saying of its Australian potential:

“To the point about the relationship between parents, grandparents, and children, the societal impact and the benefit of sharing this wealth and creating liquidity out of an asset stock could have huge implications for communities, families, and society. It could make a really big difference.”

Understanding wealth and how to access it

Australia has a real opportunity to meet the needs of an ageing population because we have good healthcare and longevity, a good pension that's sustainable and means tested, with good housing and a good superannuation system.

This opportunity is not there yet for baby boomers and older generations. First, we have to provide information and advice to create awareness of wealth in the minds of Australians. Then we have to deliver confidence in and access to that wealth in the wallets of our senior citizens.

Superannuation funds have built lifelong relationships with Australians during their accumulation phase and are in prime position to deliver trusted holistic advice covering the full spectrum of the retiree’s assets. Current regulations make this much harder than it should be and we see that super funds are nervous to risk regulatory fines or disapproval.

Stephen Reilly, COO of HESTA says:

“Everyone is trying to do the best they can for members who are looking at retirement, and who are scared to death about just how long they’re going to live. One of the big challenges for us is that we know a lot, but we don't know everything. It's a bit like that old fable of people feeling different parts of an elephant; you feel the trunk, you feel the tail, you feel those great big legs and you imagine different things. The easy part for us is going to be the tech part, where we start to pull those bits of data together. The hard part is going to be working together so that we can deliver really good advice, good help to members so that people can go into retirement a little more confident and a little less scared.”

It’s time for the industry to unite and to support new legislation that allows super funds to become the trusted source of retirement advice for all three pillars of retirement income.


Josh Funder is CEO and Managing Director of Household Capital. Josh is an advocate for positive ageing and co-founder and former chairman of Per Capita.


jeff o
December 16, 2021

On 15 December, our Minister for Social Services announced a cut to the borrowing costs on the pension loan from 4.5% to 3.95% effective from 1 January, rebranded the Govt's scheme to "Home Equity Access" and foreshadowed a lump sum option rather than weekly income payments from accessing their private savings in their homes..

The Minister/government continues to administer this rate and fails to be open and transparent about the basis of the loan rate/borrowing costs to older Australians.

Why wasn't the borrowing costs lowered/cut further after the RBA lowered the official cash rate to 0.1% almost 2 years ago? On what basis is the rate administered?

Some progress...but still a "super" profit to the Govt on the 5100 loans to older Australians; given an excessive interest margin/ spread to official cash of 3.95-0.1= 3.85%, no credit risk and low operating/admin costs.

Effectively, this remains missed policy opportunity/reform and continues to mean that many older Australians oversave and underspend during retirement and creates fewer jobs for younger Australians....and it's not in the national interest!

jeff o
December 15, 2021

PS - On 15 December, Federal Social Services Minister Ruston announced a cut in government set loan rate from 4.5% to 3.95% - effective 1 January 2021; rebranded loan to "home equity access scheme" and will offer lump sums/ capital amounts not just income streams.

Why have older Australians waited so long for this simple administrative change?

Official cash rates will have been at almost 0.1% for 2 years, providing the government with a super profit interest spread of 4.4%!!! Will the government be quick to raise loan rates when its borrowing costs rise in the future?

Why doesn't the Minister explain the policy basis of the government loan rate?

The borrowing costs are still too high - relative to the govt's funding costs, low credit risks and operating/admin costs - effectively making super profits on 5,100 loans outstanding to older Australians.

This remains a missed structural policy/refrom opportunity ....and effectively means too many older Australians will continue to over save in retirement and underspend leaving younger Australians unemployed.....a loss of individual welfare and inconsistent with the national interest.

December 13, 2021

These solutions to unite the three pillars of retirement funding do little to assuage retiree fears of bureaucratic interference in their finances. "85% of retiree respondents are unaware of the three pillars of retirement funding (the age pension, compulsory superannuation and voluntary savings)". It is not reassuring to see "voluntary savings" so casually tossed into the pool of "collective wealth" to be "divvied-up" according to some-one-else's- priorities either. 

December 12, 2021

"....scared to death about just how long they’re going to live"


December 12, 2021

Great article and some interesting points from a lot of good people. Where would I find more information about the idea of 3+1% retirement income funding? I've read about it previously around this topic. Grateful for any links or details.

December 09, 2021

An interesting article:

I may be getting grumpy in my older retired age, I would prefer to think I am more intellectually questioning of what I hear and read. When I read the statement:
>> Superannuation funds have built lifelong relationships with Australians during their accumulation phase and are in prime position to deliver trusted holistic advice covering the full spectrum of the retiree’s assets.

I reflect on those lifelong relationships built on disengagement (by many) and inability to change provider (for some) which does not NOT support the conclusion that funds are in a prime position to deliver trusted holistic advice.

Using the logic thread from the article, I could equally credit "the Government", "Centrelink", "the ATO", "my employer" or "my church" as being suitable for providing trusted holistic advice.

Perhaps there are too many pillars and we could find a solution which encourages informed and empowered retirees with skin in the game and a casting vote to competently manage their own affairs. As proposed above, truly independent advisers and better defaults would be a great help in achieving this.

December 14, 2021

Agree 100%. I don't believe super funds are best placed to provide retirement planning advice. Best to get advice from a more objective source like a financial adviser who can recommend retirement products that are truly in your best interest and not aligned with the interests of the super fund.

Josh Funder
December 09, 2021

Jeff, the big banks don't provide mortgages close to the RBA rate and any form of reverse mortgage will always cost more to provide for several clear reasons: there is no term to the loan; the customer only has to repay when the leave the home; there are no regular repayments required; there are strong regulatory guarantees required to be provided under responsible lending. The Centrelink PLS reverse mortgage is not regulated as a financial product, does not provide all the above consumer protections, has limited product flexibility and choice, and is a government mortgage provided at a modest discount to private providers who source capital in the private wholesale debt market. There are a variety of innovative home equity access providers in Australia meeting the retirement funding needs of senior Australians.

Jeff O
January 05, 2022

Josh, "Govt mortgage at a modest discount to private providers"?


Govt at 3.95% v Household Capital at 4.95% and others 5.5%-6% pa plus

Govt v private providers - a (big) difference of 1-2% pa for the life of the loan (say, borrowed at age of 65 and die at 80=15 years) or 16% to 34% additional interest capitalised to pay down to private providers from the sale of your home/estate !

December 08, 2021

“It’s time for the industry to unite, to support new legislation that allows super funds to become the trusted source of retirement advice for all three pillars of retirement income.” Well, if I wasn’t scared already I am now by that proposal! Trusting legislation (government) and the superannuation industry (vested self interest) to deaccumulate on my behalf! 

Jeff O
December 08, 2021

Agree - where do you find the much needed ....."disinterested" financial advice ?
Not from govts, super funds..............but from some independent financial advisers.
Some industry superfunds are seeking laws from the govt to protect them from members!!!
PS - "the hard part is going to be working together..." what does that actually mean HESTA/Joshua?

Josh Funder
December 09, 2021

The hardest part will be to deliver forms of guidance and advice to the majority of retirees who can't afford thousands of dollars and don't current get any advice to plan their retirement. That may involve funds partnering with independent and scalable advice groups to meet the needs of members. The retirement income covenant will reveal which funds have a retirement strategy that includes only superannuation or also helps retirees access to affordable independent forms of advice and all three pillars of their wealth.

Josh Funder
December 09, 2021

Providing confidence in deaccumulation and trust in providers is key. For folks with private savings, SMSFs and access to high quality independent financial advice, the main breakthrough is to provide responsible and efficient access to home equity, which remains for most the largest store of wealth. For three quarters of retirees who have the pension, super and no access to advice, we need much better defaults to deliver access to all three pillars of retirement funding and improve outcomes.

jeff o
December 09, 2021

So currently, the best offer to boost retirement incomes for those three quarters of older australians ....go to Centrelink (and if you need ...use their adviser) and access the pension loan at a borrowing cost of 4.5% - significantly lower than from private providers. But this "default" is a "rip off" relative to both short and long term govt funding costs of less than between 0,1% and 1.7% , respectively, notwithstanding the simple "free" advice. Then there's the higher cost private providers of reverse mortgages (before or without financial advice). Agree - the Commonwealth government and the private market place continues to fail to deliver "defaults" in the interests of older Australians and more generally the national interest. How will government policy respond - another RIR, a better offer etc? when will the market respond?


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