Nicolette Rubinsztein said Mercer’s call for a universal age pension, scrapping the means tests and keeping the superannuation guarantee (SG) steady was the wrong way to go.

Instead, the non-executive director of UniSuper and Zurich/ OnePath Insurance said the top priorities for Canberra should be raising the SG to 12 per cent, pushing the retirement covenant legislation through parliament and abandoning a very punitive taper rate.

Mercer, in its submission to Treasury for the Retirement Income Review last week, called for a universal age pension, saying it would have huge benefits for retirees and households and take away the need to raise the SG to 12 per cent from 9.5 per cent. They also said that the means test was a primary obstacle for the retirement system to interact effectively.

Rubinsztein, who was president of the Actuaries Institute for 2019, said while a universal age pension would help to simplify the retirement system, advancements in technology would do that anyway. She is due to speak at Investment Magazine’s Retirement Conference next month.

“I’m confident that advancements in technology in the next ten years – things like online advice, connectivity with the Australian Tax Office and open banking – will cut through the complexity from the member’s perspective,” she said.

She also added that while the objective of superannuation was under debate, many believed that dignity in retirement was best served by supplementing the age pension and replacing it for the higher income deciles.

Need for tweaking

“We shouldn’t be looking to replace the age pension for everybody,” she added. “If you look at the projections in the intergenerational report, our age pension is quite affordable by global standards. We should be focussed on making sure it is properly targeted which really only means some slight tweaking is needed.”

Rubinsztein said with a “few tweaks” Australia’s retirement system “could produce a very good outcome” without the need for wholesale change.

“Everyone has acknowledged that the retirement part of our system is sub-optimal,” she said. “We have been having that conversation for the better part of a decade so it is time to stop prevaricating and get on with it.”

During her time with the Actuaries Institute, she hosted the heated debate between the Grattan Institute and Mercer over retirement adequacy. Grattan suggested that Australian retirees have enough money when they retire – in fact too much money – arguing that the SG shouldn’t go to 12 per cent. David Knox from Mercer called the Grattan model “flawed and misleading” and supported the legislated increase.

“It was a battle of assumptions but on balance I think a 12 per cent contribution rate is where we should be heading,” she said.

Rubinsztein also said that the age pension taper rates should be reviewed because they were overly punitive and could mean that some low-income earners, who should get a full-aged pension, miss out.

She has also called for a clear objective for the retirement income system which would assist both regulators as well as the industry. Currently, she added that the purpose was unclear.

“Is the objective to replace the age pension, to reduce the burden on government or is to deliver a comfortable level of retirement?” she said.

An important challenge for Rubinsztein is the superannuation system’s focus on individual rather than household outcomes. This is despite the three pillars of the retirement system (age pension, home, savings) being focussed on the household.

“We should be looking at the household view not the individual as you get very different answers in terms of how much super you need,” she added.

The actuary’s solution is to boost member engagement through digital interactions. “As soon as you engage with members and ask just a few questions, you can get the household view quite easily,” she said.

Broader than product

Rubinsztein said a key way of achieving the right result for the retirement system was for super funds to develop broad retirement strategies –and resist being straight jacketed into offering members a particular product solution.

As she sees it, the Retirement Income Covenant – still before parliament – was a major stepping stone and much broader than the proposed Comprehensive Income Products for Retirement (CIPR) framework.

“It’s not just about a product solution, a CIPR or a longevity solution – retirement strategies should encompass advice, segmentation, engagement and importantly digital interaction,” she said.

“For some funds an annuity could be a good idea, for others a deferred annuity might be a good idea and for others some sort of mortality pooling without a guarantee. Funds need to develop solutions that are specific to their members and their situation.

In her view, intelligent defaults are the answer.

“Saving $500,000 for retirement before defaulting that money into an account-based pension and putting a small part into a deferred annuity is a good option,” she said. “But if members are asked a few extra questions about home ownership, relationship status and household assets, the fund can easily deliver a more targeted solution, using digital engagement where face-to-face advice isn’t viable.”

Investment Magazine’s Retirement Conference will be held on March 31, 2020 at The Fullerton Hotel, Sydney. Please register here.


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