Keating wants better integration of super and pension systems

Former prime minister Paul Keating, architect of Australia’s superannuation system, wants changes.

He has recommended the Government merge parts of Centrelink into the superannuation system.

Keating put forward the proposal at The Australian Financial Review’s superannuation lending roundtable, held in Sydney earlier this month.

“This is a big opportunity,” said Keating. “The technology is there, and we could essentially have one retirement system that is used centrally in super.”

The roundtable heard large numbers of Australians only draw down small amounts from their superannuation nest eggs, fearing running out of money – a phenomenon coined FORO – Fear Of Running Out.

The trend has repercussions for aged care, potentially reducing spending on home care or delaying entry into retirement living or residential aged care. This potentially leads to worse outcomes for older people, and adds to pressure on health and aged care systems.

Failure to draw down super also creates greater reliance on the Government pension system.

Later-life income simplified

Keating said Australia’s $4.5 trillion superannuation system should be more aligned with the Age Pension system to make the overall system more efficient and easier for older Australians to understand.

The change could increase pension uptake and educate people about pension benefits they may otherwise not have known about.

To access the pension, older Australians must complete a 45-page form. If the systems was more integrated, super funds could provide that information, Keating proposed.

Super under pressure to support members

With more than a million Australians set to retire over the next decade, it’s estimated that by 2033, more cash will be being withdrawn from super funds than being contributed by members.

The shift is putting super funds under pressure to develop retirement products and deliver better guidance to older, especially wealthier members. A series of reviews have found the sector is moving too slowly.

Currently, superannuation funds are banned from providing more advice to clients. Government has proposed changes in its second tranche of Delivering Better Financial Outcomes reforms, but work has stalled.

It’s not the first time Keating has ventured into proposing changes to Australia’s retirement income system since he stepped down as PM more than 30 years ago.

During the Royal Commission into Aged Care Quality and Safety, he proposed a HECS-style loan scheme that would allow older Australians to receive care upfront and repay the cost through their estate if they had the means to do so.

A similar concept was proposed by departing Uniting NSW.ACT CEO Tracey Burton at the Retirement Living Council’s National Summit in Brisbane earlier this month.