Need to know
- Super Consumers Australia says a 'one-stop shop' could help provide free and independent retirement guidance
- A similar model, the UK's Money and Pensions Service (MaPS), has received good feedback and helped people enjoy more income in retirement
When we asked more than 10,000 Australians about their experience planning for retirement, two messages came through loud and clear: firstly, there is a need for independent advice, and secondly, the process is too complicated.
"As far as seeking (retirement) help from other organisations … the problem lies in knowing whether or not to trust them," wrote Ron*.
"Those who are less well informed about matters financial are those most often preyed upon."
This lack of trust also came through in an industry survey which found only 24% of retail (or non-professional) investors trusted financial advisers.
In CHOICE's survey, 83% of respondents who were yet to retire said they find planning for retirement 'moderately', 'very' or 'extremely' complicated.
"There seems to be nowhere to get appropriate free advice," retiree Ann* told us in the survey.
"Last week, I tried to navigate the government concessions available and gave up because it is an absolute nightmare ... We need a one-stop shop or government department that provides all the info we need. I'm now facing having to sell my little home, that I (largely) built myself, just to help fund my retirement. This is very unfair."
*Names have been changed.
The one-stop shop
One way to address both the lack of trust and the difficulty of resources being scattered across multiple departments would be to develop a one-stop shop for retirement planning. The UK has done a similar thing with its Money and Pension Service (MaPS).
A similar guidance service in Australia could offer truly independent advice (i.e. from a government body with no interest in selling you anything), reduce the confusion caused by planning resources being spread across multiple departments and provide tools to help people compare retirement phase options.
Ultimately, it could help you have more retirement income and a better quality of life in your post-work years.
The current situation
The financial advice sector in Australia has undergone significant changes in recent years, but concerns about conflicted advice as highlighted in The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the banking royal commission), 2017–19, continue.
"Despite the royal commission findings, conflicts are still rife in financial advice," says Super Consumers Australia director, Xavier O'Halloran.
"At the moment, too many people are relying on conflicted advice to help manage their retirement savings."
The last time advice was reviewed (in 2020), the Australian Securities and Investments Commission (ASIC) found the majority of super funds advice didn't fully comply with the 'best interests' test and related obligations.
ASIC found the majority of super funds advice didn't fully comply with the 'best interests' test
The regulator has also outlined that Australians see value in financial advice but have a significant distrust towards the industry.
This year, the government will run a Quality of Advice Review. This consultation will aim to ensure Australians "have access to high quality, affordable and accessible financial advice."
Super Consumers Australia has previously called on the review to consider the poor performance of choice super funds (the funds you have to elect to join) in the most recent APRA heatmaps.
Franco Morelli, Super Consumers Australia policy manager, says if the review is properly resourced, it will be able to source advice files and review them. This review, coupled with the APRA superannuation heatmaps, could be used for a new benchmarking exercise.
The latest APRA heatmaps showed widespread underperformance in this sector; 60% of investment options in the heatmaps delivered returns below APRA's benchmarks over a seven-year period.
The latest APRA heatmaps showed widespread underperformance in this sector
Morelli says that in many cases, people are advised into choice super funds. "We encourage the review and ASIC to use benchmarks as a performance test metric to see if the advice people get is resulting in materially better outcomes," he says.
"Once this preliminary review is conducted, the focus should turn to the efficacy of the regulatory regime in delivering quality, accessible and affordable advice."
A one-stop shop, similar to the UK's, would simplify retirement planning.
How independent guidance could help Australians in retirement
The Retirement Income Review (RIR) found that Australians could have more income in retirement by using their savings more efficiently. It also noted that "there has been insufficient attention on assisting people to optimise their retirement income."
Further, the RIR acknowledged the complexity of the system, which it said has led to people not planning fully for retirement and not making the most of their assets when retired. "People need better information, guidance and good, affordable advice tailored to their needs," the report concluded.
A lack of guidance can be a barrier to people drawing down on their retirement income or using initiatives such as the government's Home Equity Access Scheme.
A lack of guidance can be a barrier to people drawing down on their retirement income
Similarly, many people could have more retirement income by selecting a product that meets their needs.
In 2016, the UK Financial Conduct Authority found that 60% of consumers don't switch annuity providers (annuities are a type of retirement income product), but that 80% of this group could find a better deal. A retirement planning portal could help them 'shop around' on this front and ultimately enjoy more income to enjoy in their retirement.
The variety and number of retirement income products are likely to grow in Australia if the Retirement Income Covenant is legislated; this would require super funds to develop a retirement income strategy to assist their members in retirement. This development means there is likely to be even more need for guidance to help people understand which retirement products are best for their needs.
Research commissioned by Super Consumers Australia found a significant section (37%) of retirement planners had an 'engaged DIY' approach.
"This group likes to make their own decisions about their finances but they need quality independent guidance and information to make good decisions," explains Morelli. "At present, their needs are not fully met."
The vertical integration problem
For a long time, 'vertical integration' was common in Australia's finance system. This arrangement involves a provider (such as a super fund or bank) offering a service or product and also advice.
The banking royal commission made clear that this arrangement often wasn't in the best interests of consumers.
The royal commission made clear that this arrangement often wasn't in the best interests of consumers
It may have been convenient to get your super and advice about super in one place. However, this model had an obvious conflict of interest as the product owner was biased towards their own products rather than the customer's best interests.
The recent collapse of Dixon Advisory, which has left clients facing the loss of their retirement savings, has again focused attention on alleged conflicts of interest in advice firms.
A one-stop shop would avoid such conflicts of interest, with unbiased advice to help you meet your retirement goals.
Would-be retirees need access to unbiased advice.
Bringing all the retirement planning resources together
Another key feature of the one stop shop is that it offers a single place for anyone planning their retirement to begin. As we covered in our retirement planning checklist, there's currently a range of resources spread across several government departments and websites. If you're trying to plan your retirement, you may need to consult:
- ASIC's Moneysmart for general introductory content and terminology, and retirement planning calculators
- commercial operators for lifespan calculators (i.e. more advanced calculators that go beyond using census numbers)
- the Australian government's MyAgedCare to determine how much your aged care is likely to cost
- your current super fund for up-to-date details of your super account and retirement products
- the Australian Taxation Office (ATO) super fund comparison tool to find how your super fund compares. Some people may also consult the little-used MySuper dashboards and or the members' outcomes assessments (which can be flawed and use self-serving metrics)
- Services Australia for information on age pension eligibility
- the ATO's website for detailed information on contributions and initiatives like the first home super saver scheme and downsizer contribution
- Financial Information Services officers for over the phone advice on money in retirement.
The new independent advice offering could also address some of the areas of retirement planning currently lacking good resources. For some questions (like how to find a retirement phase product that suits your needs) there currently aren't any good tools to use.
The UK example
When it introduced changes to the UK's pension pots, the government made a 'guidance guarantee' to ensure people could get the most out of the new options and make good decisions.
The service has been successful overall. A departmental report noted it has become "a trusted source of impartial help" and that it "changes peoples' lives for the better".
External feedback has also been strong – its Pension Wise service, which gives guidance to people in person or over the phone, recorded a 94% satisfaction rate among those who completed appointments. A review of the service also found that pension providers, debt relief charities, banks and investment firms supported its work.
Australia could implement a similar service and learn some lessons from the UK experience.
Morelli says Australia's retirement system is changing, like the UK system did, and this means we need our own version of the guidance guarantee."With the Retirement Income Covenant likely to see a raft of new products on the market, it makes sense that Australia would also introduce an independent guidance service to help people get the best out of their retirement income."
Towards a one-stop shop
Morelli says the government should launch a consultation to allow industry, charities, academics and members of the public to give their views on an independent guidance service.
"The benefits of this type of service are clear," he says. "The UK example shows how it can cut through the complexity of our current system and help people navigate retirement.
The consultation could be part of the upcoming Quality of Advice Review or a standalone consultation.
"The most important thing is to get the ball rolling towards Australians getting access to free, impartial, expert guidance on retirement."