Financial services nudged to account for aged care

13 October 2020:

The financial services industry could need to consider how it integrates with aged care, as the minister for superannuation has said the government will be pushing for more cohesion between the different elements of retirement income.

Speaking on a Household Capital panel on Tuesday, assistant minister for superannuation, financial services and fintechs Jane Hume weighed up aged care and retirement, as they link to the pension and retirement savings. Also sitting on the panel were industry experts including former Productivity Commission chair and current chief executive of the National COVID-19 Commission Advisory Board, Peter Harris, as well as Rice Warner CEO Andrew Boal and Milliman director of insights and strategy Amara Haqqani. 

The discussion was taking place as the government is yet to give guidance on when it will drop the findings of its eagerly awaited Retirement Income Review, which has considered how the three pillars of retirement, the age pension, superannuation and voluntary savings, will meld together.

In a newly released survey, Household Capital had found 72 per cent of older Australian home owners want to remain living in their own home but they are mostly not confident they have sufficient retirement funds. 

“In the early retirement conversation, we don’t talk about aged care enough,” Ms Haqqani said.

“And it’s something that I personally lament in the financial services sector, we think aged care is someone else’s problem, or another industry’s problem.

“I personally will admit that we need to be better at the industry about being much more cohesive about these things and I applaud the retirement income review in general, for having to start that conversation about bringing these things together.”

Ms Hume noted the aged care system is heavily subsidised by the government, with it spending around $20 billion on the sector in 2018/19 – but consumers don’t know that. 

“[Aged care is] something that perhaps isn’t necessarily considered by those who are planning their retirement income,” the minister said.

“We find that a lot of people hang onto their superannuation, they end up dying with a large proportion of their superannuation intact because they’re nervous about what might happen to them, with regards to health and aged care. 

“I suppose they don’t fully understand it and perhaps the onus is on the government to explain that to them that so much of that is well subsidised by the government in Australia.”

Ms Hume remained elusive when asked about the release of the final 650-page report from the Retirement Income Review, saying the government is striving to calibrate its response to its findings before it makes it public.

According to the minister, the release of the report is “imminent” and it currently is sitting on the desk of Treasurer Josh Frydenberg.

“What we want to see is a retirement income system with that cohesion between the three pillars, using the taper rate for the age pension, using superannuation more effectively rather than hanging onto it, making sure there’s more appropriate deaccumulation products available to people so that they can more effectively use their superannuation. And then also using that voluntary savings component and that may well be the family home, to amp up or wind down any additional income they may need,” Ms Hume said. 

The government also rolled out a suite of reforms for the super industry last week in the federal budget. 

It expects the package will save Australians around $17.9 billion over the next decade, as a result of changes for members such as being stapled to one account and having access to an online comparison tool of funds.

Retirement income has a way to go

But Mr Harris said there’s “plenty more to go” for retirement income policy. For him, it will be interesting to see if the Retirement Income Review addresses the purpose of super. 

“We’ve found that to be in the past quite a difficult concept to define,” Mr Harris said. 

“People have many perceptions around what superannuation is and we refer to Paul Keating’s comments. And so certainly the former prime minister and treasurer has a perspective on what superannuation is for but there are other differences as well.”

The review is also considering different products, with Comprehensive Income Products for Retirement (CIPRs), similar to annuities, being on the table. 

Mr Boal said the right products could be a factor for giving retirees confidence to spend, use up their super savings and feel more secure. 

“These sort of products that help pool some of the risks, that you try not to manage to pool yourselves,” Mr Boal said.

“And maybe it’s time we started thinking about some of the other risks that we can also start saving in advance for and pooling the risks so that those that are unfortunately affected by them can benefit from the resources of some others to help ameliorate some of those risks.”

Around half of retirees will tend to gain some form of disability, he noted, after around eight to 10 years into retirement. By about age 81 or 82, individuals will have a severe or profound disability.

“These complications don’t affect everybody, but you want to at least be able to live the first 10 years of your retirement enjoying it, before the body starts wearing out,” Mr Boal said. 

For Ms Haqqani however, access to information and advice ranks above product solution sets in importance. A number of the panellists, including Ms Hume and Aware Super chief Deanne Stewart ruled financial advice will be key to improving retirement outcomes.