Government’s plans for your retirement savings

After the second win of the Albanese government let’s talk about the party’s plans for your retirement and your retirement income streams. I think this is an issue every Australian preparing for retirement or already retired should be well aware of and prepared for.

So today we are talking about Labor’s plans for your retirement savings, and how the government sees you organising those savings for what the Albanese government believes will be the best outcome for you.

As you know the superannuation fund trustee’s job is to:

• Understand members needs
• Offer what has been named “fit-for-purpose” retirement products and
• Provide members with clear information about their choices to make an informed decision.

But the Albanese government also has an additional plan, and it is to provide each member, or retiree with what we could name “longevity products” for income streams titled Providing quality retirement income solutions.

And what’s more, the government is pushing those longevity products to be offered or provided to each retiree with superannuation savings balances of $200,000 or more.

So what are longevity products?

Those are the products or the income streams that provide members with longevity protection either for a specified number of years, therefore fixed term-products or for the life of a retiree, lifetime products.

Those products would provide a regular income payments that may increase according with full level of inflation or partial inflation or according with performance of the overall fund.

Those products would include income streams similar to:

• Annuities or
• Defined benefit pension accounts.

So what is wrong with this government recommendation – you might ask.

The answer is this: most financial planners including myself would actually often recommend portion of savings to be invested in income streams such as lifetime annuities. I have been explaining annuities on this website many times, as I believe they are fully misunderstood, however if I recommend this to you is because there are great benefits provided to you beyond the annuity income itself.

Those benefits could include:

• improvement of your Age Pension payments,
• Improvement of the value of your estate
• Improvement of your investment asset allocation
• Increase of the overall income earned by mixing different income streams
• Reduction of the overall market volatility by investing into annuities that are regarded as a capital stable type of investment

Therefore, if we, as financial planning practice, recommend those income streams to you, it is due to re-checked and re-calculated benefits for you, and a client can accept or reject our advice.

This is different if this type of income stream is pushed on by the government. It becomes a default with your no say in the matter, therefore taking away your personal choice as to what you can do with your own superannuation savings, and I believe this is not right.

If you think that you will automatically achieve those benefits I listed before, you will not. Those benefits are created based on a specific strategies and calculations performed for each client separately taking into account their particular circumstances and not due to a default solution that the government wants to introduce for all.

It got to the point that the press is calling Albanese solution “Putin measure” because the outcome would be:

• Lack of financial choices for you
• No access to capital
• Lowering your overall annual retirement income

The Superannuation Members Council is fully opposed the government mandating how you should use your saved money by saying:

“After a lifetime of building savings, people should be free to spend their money how they choose in retirement”.

I do not want to be political, but I am 100% opposed the government treating us like children that don’t understand money. After all, it should be our choice how to look after investments and what we can or cannot do with our own hard earned and saved retirement fund.

So please watch this space. If you are in the process of preparing for your retirement, please do not accept a default solution. Some of those solutions once set, cannot be undone, and you really do not want to be in the situation of making a decision of a solution that doesn’t provide you with choices.

If you do not fully understand the choices that your fund provides, please speak with a financial planner. Yes, there is a cost for such advice, but considering the rest of your life financial income security, I think it is better to enter your retirement with eyes wide open and understanding your choices, benefits and shortcomings.

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement