There’s a big change coming to super – here’s how it will help you retire earlier

Australians retiring from the age of 60 could soon find it easier to get a regular stream of income from their pensions.

Under current rules, an employee who is old enough to retire but too young for the age pension must apply to their super fund for permission to withdraw money through a 'designated pension'.

Defined pensions allow a retiree to receive regular payments from their pension while the balance remains invested.

They are available from the age of 60, while the government-funded old-age pension can only be paid to those who have reached the age of 67.

However, a Treasury discussion paper says variations in terms and conditions between different super schemes are causing confusion over how pensioners can access their money.

The paper, published on Monday, explored the idea of ​​requiring funds to offer a standardized allocated pension product.

SuperRatings director Kirby Rappell said the use of super should be simplified.

“We need to ensure that funds focus on how they support members through retirement, rather than worrying about the paperwork involved in starting a pension,” he told Ny Breaking Australia.

“If you retire someone, they have to find out what Centrelink is entitled to, which is a vested pension.”

Mr Rappell said the system was so complicated that many people did not know how to receive an income stream from their super after spending 40 years building up their super balance.

“Many people have gotten used to building up their pot of money, but the time has come when they need to learn how to profit from their money in a sustainable way,” he said.

'The main challenge we see is: “How do we build trust in the system?”

“A lot of people, for lack of a better term, insure themselves by trying not to spend a cent, and then other people may not have that much of a pension and they're not sure how much they can actually get.”

AustralianSuper, an industry super fund with $300 billion in assets, favors a standard model of super withdrawals and has previously advocated a system where retirees can simultaneously access an income stream from their super while being subject to an age limit. pension from Centrelink.

Treasurer Jim Chalmers and his assistant minister Stephen Jones said on Monday that Super's retirement phase needed change.

“The problem is that most retirees don't have access to the right products to help them maximize their livelihood throughout their lives,” they said.

'Super funds must do more to understand the retirement needs of their members and offer products and services tailored to their retirement needs.'

But Mr Rappell said the Government needed to make the retirement phase super-simpler, without taking too much of a one-size-fits-all approach.

“The flip side is: Will it be tailored enough to help people achieve their retirement goals?” he said.

Australians born since July 1964 can access their super at age 60.

But the government-funded old-age pension, of $1,002.50 per fortnight for a single person, is only available from age 67 for those born since 1957.

The Treasury study noted that 84 percent of super companies in the retirement phase had an allocated pension, but only 3.5 percent had a pension. annuity, which provides a guaranteed income stream for life.

Mr Rappell said the income retirement phase marked a change in thinking.

“A fundamental shift where we go from 'I have half a million dollars in retirement' to 'I can afford to take out $20,000 a year for the rest of my life,'” he said.

'Reassuring people with a different way of thinking, but it's about an income stream and not a lump sum.'

The Treasury estimates that pension benefits will double to 5.6 percent of gross domestic product by mid-2063, up from 2.4 percent in 2022-2023.

Comparison with MySuper

Australians had $3.5 trillion in super money in June this year, but MySuper accounts were worth $996 billion, or 28 percent of that, data from the Australian Prudential Regulation Authority showed.

MySuper is the lower cost, lower risk standard account that became law in 2012.

Younger workers who tend to change jobs more often are more likely to put their forgotten retirement savings into a MySuper account, with union-backed sector funds dominating this space.

The Treasury discussion paper examined whether there was a standard approach applied to MySuper and applied to allocated pensions or super withdrawals.

Mr Rappell said super reforms could focus on that.

'How do we extract some of the successful elements from MySuper and roll them over to the pension phase?'

Submissions for the final discussion paper on the Treasury close on February 9, with new laws likely to be passed next year.