Consumer advocates have criticised the latest research from Super Members Council on how retirees can better access the tax benefit of pension phase, calling out that the minimum balance requirement imposed by some SMC member funds means it is “literally impossible” for poorer retirees to even access account-based pension.
In new research released on Wednesday, the SMC said around 700,000 Australians who are over 65 and are not working full-time still maintain an accumulation account. This means they are paying an extra $650 in taxes each year on average for not switching into pension.
The research surveyed retirees with lower balance – defined as having less than $100,000 – who have an inactive accumulation account, and found that six in 10 kept it because they either haven’t decided or don’t know what to do with their account.
But in a strongly worded post on LinkedIn, Super Consumers Australia CEO Xavier O’Halloran said super funds only need to “look into the mirror if they want to help people save on tax by moving to the pension phase”.
O’Halloran was referring to findings from a Conexus Institute* analysis last September which found a little-known administrative hurdle is prohibiting tens of thousands of less well-off retirees from accessing tax-free account-based pensions (ABP).
Most super funds have placed a minimum balance requirement on retirees to apply for an ABP, the analysis found. Prominent SMC members such as AustralianSuper and HESTA require a minimum balance of $50,000, while Australian Retirement Trust and Fire & Emergency Services Super require $30,000.
AustralianSuper said at the time it was reviewing the threshold, but at the time of publishing, the ABP product brochure on its website still indicates a $50,000 minimum balance requirement.
Several retail pension funds have similarly high bars – including $50,000 for Fiducian Super and Russell Investment, and $40,000 for Vanguard Super.
“It’s literally impossible for people with low balances to get access to the tax benefits if they stayed within those funds,” O’Halloran said, before calling the minimum ABP requirement as “inequitable super fund policies”.
When contacted for comment by Investment Magazine, SMC chief executive Misha Schubert said: “We think every Australian – whether they have a low or high super balance – should be able to access high-quality information to plan for their retirement. The proposed advice reforms will be another important step towards that shared objective.”
The profit-to-member fund peak body also highlighted in its research that affordable advice is a crucial tool to help retirees more proactively transition into the pension phase. It urged the Albanese government to “swiftly legislate” its five-pronged advice reform proposals, which will allow funds to employ a new class of adviser to advise on simple issues related to “products issued by prudentially regulated entities”.
SMC said retirees with balances less than $100,000 would be the group that would benefit the most if funds can offer simple advice related to retirement income, instead of having to seek detailed but costly financial plans.
The organisation’s research found that only 26 per cent of retirees have sought finance advice from their super fund, and four in 5 Australians aged 45–54 need financial advice but cannot afford it.
But SCA’s O’Halloran criticised the SMC’s solution as “conflicted”.
“Pump out more low quality super fund advice telling people to roll into the pension phase?! The super fund’s own policy doesn’t actually let people do this, guys…” he wrote on LinkedIn.
“The best advice would likely to be to leave the fund, but good luck getting that guidance from conflicted in house advice.”
*The Conexus Institute is philanthropically funded by Conexus Financial, publisher of Investment Magazine.