Australia’s “lump-sum” mentality when it comes to superannuation is a key challenge for government and industry, says Nick Sherry, senior adviser to Citi, arguing that the system is need of a significant change in parameters.

“Australia is the land of the lump sum. I call it the lotto mentality,” he tells IM Online.

“The classic that I compare it to is workers’ comp, [which] in Australia is predominantly a lump-sum system. You try and get a reasoned debate around paying workers’ comp as an income stream – it’s very, very difficult.”

Sherry says a lump-sum system more concerned with market-related returns and individual risk is partly responsible for how superannuation is perceived.

“We have a devolved superannuation system operationally in Australia, so many people see it as maximising wealth management, rather than a retirement-income system.”

Sherry believes Australia has to deliver a higher uptake of pension-annuity products in the super space, which he says super funds are working to provide.

However, in terms of moving from a lump-sum culture to an income-stream culture, Sherry queries what the operational rules will be.

“At its simplest, at the moment, we have a minimum drawdown at age 60, but no maximum,” he says.

“At it simplest, you’d have a band of the minimum drawdown and an upper band for the maximum drawdown.”

He says some in Australia would go further and advocate a compulsory annuitised pension system.

“I don’t think that is practically or politically deliverable in Australia,” he says.

“Australia’s a lump-sum culture and you can only go so far in setting parameters around the lump sum.”

Sherry says that in order to maximise take-up of an annuity pension, there needs to be some level of compulsion and incentive as part of that.

He believes the correct parameters would be realistic and delivered over time.

“It would still allow some level of access to some lump sum, but the remainder would have clear parameters around it, minimum and maximum drawdown.”

Sherry says neither of the major political parties has “put a stake in the ground” on this area of superannuation.

“[They all] understand that the current approach isn’t viable,” he says, noting that past reforms show bipartisan support.

“I’m not without hope that there’ll be a realistic assessment of what needs to be done, given past record. But I don’t live in hope.”

Sherry will be delivering the keynote address on how to turn Australia’s accumulated superannuation wealth into an effective retirement solution at the Post-Retirement Conference, a Conexus Financial event in association with AIST on March 5, 2013 in Melbourne. For further information, click here.