The superannuation system is “condemned to fail” if it isn’t overhauled and made consistent with the aged pension by providing lifetime benefits rather than lump sums, warns a new Deloitte report.

The Federal Government and the industry should be tasked with moving super to an annuitised and more flexible system or leave Australians woefully underfunded in retirement, said Deloitte superannuation partner, Wayne Walker, who is co-author of the report entitled Adequacy and the Australian Superannuation System.

“The industry is providing benefits well below what’s needed, and that’ll continue for many years to come. If we don’t do anything, we’re condemning the system to fail in what it set out to do,” said Walker. “The industry can’t do it alone, because the overwhelming number of Australians left to their own devices, will take a retirement as a lump sum.”

Walker added that the inadequacy of product innovation, taxes on contributions and a lack of flexibility would continue to drive more people into self-managed super funds (SMSFs).

“Why does most of the retirement money that stays in the super system go into SMSFs?” he asked. “Is it because they’re so fantastic, or because the products and investment options offered by super funds don’t meet the needs of members?”

He queried why funds did not offer value to family units in the way SMSFs did. “It’s the first principle of business – learn from the success of your competitors,” he said.

Walker saw a big opportunity in offering more dynamic products and annuities.

“The products on offer are not exciting in terms of being innovative, and default options are on average 70 per cent exposed to growth assets. Few of them allow members to manage their risks quickly and flexibly when their circumstances change,” he said.

Deloitte’s study found Australians need to contribute an additional 5.5 to 7.5 per cent of salaries every year they work to self-finance a comfortable retirement, with a balance of between $610,000 and $690,000 required.  But, Walker warned even balances in excess of $600,000 were likely to be eroded away by longevity, aged care, health and essential living costs, such as food.

Commenting on the findings, Australian Securities and Investment Commission’s head of compliance, Greg Tanzer, said debate about how super is treated was “healthy.”

“I haven’t looked at the report, but it’s very important to have this attention on super… As a general proposition though superannuation is intended for developing and growing retirement income, that’s why the laws are in place, including the tax laws. We can’t lose sight of that.”

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