Opinion
There’s an enormous wave of people approaching retirement in Australia today. Many, particularly over the next decade as super matures, will have relatively small balances and limited financial confidence.
Instead of feeling prepared, they feel overwhelmed. They put off engaging with their super, delay important financial decisions, and quietly hope things will sort themselves out when work ends.
For many of these people, meaningful financial advice simply isn’t accessible. Advice is expensive, often geared towards larger balances and private asset management, and increasingly unreachable for those who need help the most.
Yet, these are precisely the people who need support to set themselves up for retirement, to understand how super, the age pension, tax-free retirement income and any ongoing work fit together to fund a liveable retirement, and to feel confident they’re not making costly mistakes along the way.
This is where Australia’s retirement system needs to change, and quickly.
If large numbers of people are overwhelmed, disengaged and unable to access advice, then simply waiting for them to make the “right” retirement decisions is no longer realistic.
Super funds need to be allowed, and expected, to play a more active role in helping members move from accumulation into retirement, so their superannuation generates tax-free returns, and is used to help them have a good life.
That doesn’t mean forcing people into a single outcome or a retirement account for life that doesn’t require them to engage, ever. But it does mean actively guiding them into suitable retirement-phase arrangements, designed in their best-interests, like retirement income accounts, when they stop working or significantly reduce hours, and making it easy to opt out if they choose something different.
Currently, super funds aren’t allowed to do this. And as a result, too many people drift into retirement still sitting in accumulation, paying tax they no longer need to pay and missing the opportunity to turn their super into tax-free income.
The scale of the problem is now clear. Research by Laneway Analytics, commissioned by HESTA, shows that in just one year around 1.8 million Australians missed out on an estimated $2.46 billion in retirement savings simply because they remained in accumulation when they were already eligible to move into the tax-free retirement phase.
Moving into the retirement phase earlier can lift a person’s total retirement income by up to 12 per cent over time.
Without changes to the system, that missed opportunity is projected to grow to more than $5 billion a year by 2030, affecting close to three million people, many of them Australia’s least financially confident retirees. That’s not good enough.
As HESTA chief executive Debby Blakey has pointed out, this isn’t about people needing complex strategies or being pushed into higher-risk investments. It’s about people failing to access benefits the system already provides – including tax-free investment earnings and tax-free income streams in retirement – largely because they don’t know how, or don’t feel confident enough to make the transition.
In that way, HESTA is arguing that this is a fix hiding in plain sight. Allow funds to actively help eligible members move into retirement-phase accounts, and you unlock outcomes the system was always designed to deliver.
HESTA’s member base – largely women working in care roles, many with below-average balances – is exactly the cohort most likely to be affected by these settings.
Under the proposal, funds would be able to actively prompt members to move into retirement-phase accounts when they’re eligible, and only where someone remains inactive, automatically transition them, with a clear and simple ability to opt out. This isn’t about locking people in. It’s about making sure the default outcome isn’t paying tax accidentally.
The modelling behind this is compelling. HESTA’s research shows that moving into the retirement phase earlier can lift a person’s total retirement income by up to 12 per cent over time, as much as $99,000 compared with someone who delays the transition by just four years.
The biggest gains are seen among people with lower balances, roughly between $44,000 and $396,000 and most particularly women, who are more likely to have interrupted work histories, less access to advice, and lots of fear.
Other countries are already moving in this direction. In the UK, this approach is described as offering “guided retirement journeys” or structured support to help people turn their pension savings into income.
And where people make no active choice at all, funds are in the process of being required to have fallback arrangements – called defaults – that move members into retirement income solutions designed to work for them.
UK regulators are moving quickly in this direction, with expectations that schemes will have guided retirement pathways and fallback solutions in place well before the end of this decade. Australia is behind.
Independent analysts see the same failure playing out on the ground. Chant West’s Ian Fryer, the assessment partner for The Epic Retirement Tick, has been unusually frank about it.
As Fryer puts it: “There are many members over 65 who have stopped working and never intend to return to work, but remain in super paying 15 per cent tax on earnings rather than transferring to a pension account where they wouldn’t pay any tax. While some will have their own reasons for doing so, most are there just because they don’t know any better.”
That matters because it cuts through the idea that this is about poor personal choices. Often, it’s about a system that asks for too much knowledge, too late in life, and then doesn’t care when people freeze in fear.
In my view, it’s time Australia’s legislators took three things seriously.
First, Australia needs better quality digital guidance that removes the need for simple retirement decisions to be mediated by a person. People should be offered clear, well-designed online journeys by their super funds that help them understand their best-case retirement income, see how the age pension fits in, and adjust their investment and income settings as they approach and move through retirement, resetting their income annually and watching their guardrails if returns shift.
Crucially, this guidance should make the mechanics of moving into retirement much more seamless. People shouldn’t have to “apply” for retirement or open a separate account through paperwork and forms like they do today.
With the right prompts and support, they should simply be able to amend their settings and move onto drawdown in a way that reflects their circumstances and the advice provided.
Second, funds need the ability – and the expectation – driven by legislation, to build retirement products that suit different cohorts, and to actively guide people into those options when they are appropriate.
Retirement doesn’t look the same for everyone, and the system shouldn’t pretend it does. For lower balances, members might not need insured lifetime income streams, but for higher balances that might make sense. And there should be supervision on the product fit for cohort, effectively stopping funds creating lucrative products and shoehorning members in by default.
And third, there needs to be a safety net (or retirement default) for people who don’t engage. If someone chooses not to engage at all (and a fund is proven to have actively tried), despite prompts and explanations, the system should be able to move them into a simple, basic retirement-phase account designed to deliver income and minimise any unnecessary tax they are paying. And of course, there needs to be a clear ability to opt out.
None of this removes the need for funds to offer real choice and decent pre-retirement education. And it’s not a call for an “account for life” that quietly locks people in so some funds can stem outflows caused by poor retirement services or weak performance.
Choice, transparency and the consumers’ best interests must come first.
Bec Wilson is author of the bestseller How to Have an Epic Retirement and the newly released Prime Time: 27 Lessons for the New Midlife. She writes a weekly newsletter at epicretirement.net and hosts the Prime Time podcast.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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Bec Wilson is the author of How To Have An Epic Retirement and writes a weekly newsletter for pre- and post-retirees at epicretirement.net.
