Key to a better retirement

As savings grow, more people will need affordable help to plan their future

You will need to fork out between $2000 and $5000 if you want a full financial plan or statement of advice. While the top 5%-10% of super savers with more complex portfolios can afford that expense, it’s less manageable for middle income earners.

It has prompted the Actuaries Institute to call for a new, more flexible regulatory regime that ensures all retirees can benefit from good, low-cost advice.

As the super system matures, more people will have more money in retirement. Andrew Boal, convenor of the institute’s retirement strategy group and chief executive of actuarial firm Rice Warner, says currently 65% of people have less than $250,000 in super when they retire and rely on the full age pension. Over the next 20 years this group is projected to drop to 40%.

“For this cohort the age pension is essentially an annuity – they’ve got that lifetime protection, it’s 80% of their income in retirement. For them super is largely a top-up for other things over and above the age pension, which is the dominant part of their spending,” he says.

Significantly, over the same time period, the proportion of people retiring with between $250,000 and $750,000 will jump from 25% to 50%, creating a mass middleincome group.

“They’re the group that’s most likely to be eligible for a part-age pension for most of their retirement. It’s a more complex situation,” says Boal. “That’s where you’ve got to work out how the means test works: how much age pension you’ll get; how much you’ll need to top up from super. They’re the people who need what we call advice. But it’s too expensive for this group.

“If you’ve got more than $750,000, you can afford to get advice. And you’ve probably got other assets as well. For that group, getting advice helps them manage that money effectively. But the big issue, particularly as funds grow, is that group in the middle – those with $250,000 to $750,000 in super,” he says.

Super funds currently offer three types of advice, which can be confusing for members: intra-fund or general advice, which is free; scaled or single-issue advice, which costs $200-$400; and full advice, usually ranging from about $2000 to $5000. As its stands the regime is too prescriptive to deliver advice efficiently. That has been the conundrum for the huge number of people in the middle. Boal says this cohort have similar circumstances with similar needs in retirement: they own a home, have their super and perhaps a few shares.

Many people get a few years into retirement before they realise they are entitled to the age pension. He says 80% of what people need is about strategy: how much you are going to contribute, how you are going to invest the money, how much you are going to draw down and how much insurance you need.

Some solutions could also cut costs for those in need of full financial advice. Sharing data from the tax office and “open banking” could cut costs significantly. The information would need to be provided with appropriate permission and delivered in a standardised format.

Vita Palestrant was editor of the Money section of The Sydney Morning Herald and The Age. She has worked on major newspapers overseas.