Australians not feeling supported by the retirement funding system
03 February 2020: Household Capital, an independent, specialist retirement funding provider has completed its submission to the Retirement Income Review in response to the government’s consultation paper released in November 2019.
The purpose of the Retirement Income Review is to ascertain the degree to which retirees are supported by the three pillars of Australia’s retirement system; superannuation, the Age Pension and other savings, including home equity.
However, as evident from a recent survey, Australia’s retirees do not feel fully supported by the Australia’s retirement funding system.
The three pillars of retirement funding have not, to date, adequately supported all Australians for several reasons:
- Australians are living longer, a fact that’s often communicated with rhetoric around this being an economic burden or threat
- Australia’s retirement system was not designed to support retirees for 20-30 years of life beyond work
- Superannuation came in too late for most baby boomers; accordingly, the median account is $200,000 at retirement (less for women), which provides income for around 10-15 years
- The Age Pension is inadequate as a sole source of retirement funding
- Home equity, the largest pool of savings for most retirees, has not been appropriately and effectively made available to improve retirement funding.
Household Capital’s CEO Dr Josh Funder commented, “By helping retirees to better access and responsibly use home equity for retirement funding, several important areas of social and economic policy can be addressed.”
“Retirees are a large group with significant inaccessible wealth in home equity and major unmet needs in consumption for wellbeing.”
“By unlocking home equity to improve retirement funding, we can enhance both the quality of life in retirement and economic activity.”
Household Capital has made several recommendations to the Retirement Income Review, including:
- The government’s ‘downsizer measure’ permits the concessional treatment of $300,000/$600,000 (single/couple) from the proceeds of downsizing. Older Australians should be incentivised to use their home equity to improve their retirement funding by having this measure applied to all forms of equity release. This improved policy would support ageing and help the economy with no additional tax expenditure.
- Australian retirees feel abandoned by the banks and need access to capital and income throughout the course of their retirement. Home equity can provide both capital and income, and help retirees mitigate longevity and contingency risks.
- There should be a requirement for all superannuation funds to offer a comprehensive retirement income package to members. This would offer appropriate products to ensure retirees have adequate retirement funding and should include access to home equity retirement funding. This should be a legislated minimum service provision for all super funds.
- Reverse mortgage brokers are exempt from a best interest test and prohibition of commission based sales. Mortgage brokers selling reverse mortgages should not be exempt from tougher regulations that apply in respect of financial advice.
“The broad policy and legislative framework for responsible access to home equity is in place, is comprehensive and sound,” said Dr Funder.
“There are no major barriers to the transformation of home equity to play a foundation role in funding retirement.”
“Australians know that the family home provides retirement lifestyle, wellbeing, housing and funding. The federal government must support the retirement funding sector to deliver better outcomes in retirement.”
Applications for credit are subject to eligibility and lending criteria. Fees and charges are payable and terms and conditions apply (available on request). Household Capital Pty Limited is a credit representative (512757) of Mortgage Direct Pty Limited ACN 075 721 434. Australian Credit Licence 391876.