The research, conducted by NMG Consulting for the FSC, proposes a more efficient superannuation drawdown phase that would raise standards of living in retirement for consumers, reduce bequests, and take long-term pressure off the federal budget.

CEO of the FSC Blake Briggs said the research demonstrates how to optimise the superannuation system and allow Australian retirees to confidently draw down $397 billion more in retirement income by 2050. 

“A retirement system that is designed around the needs of retirees, providing them the products and advice they need at retirement, and encouraging them to enjoy their savings in retirement, will enhance the long-term sustainability of the superannuation system and take pressure off future tax settings,” he said.

“The FSC’s research shows that if our road map was implemented, annual benefits paid out by superannuation as retirement income would be 10 per cent higher each year, increasing to $38 billion more per annum by 2050. The higher income paid to retirees would total $397 billion by 2050, when compared to current policy settings.”

The roadmap identifies a full package of reforms centred around action in three areas including helping people see and use superannuation as primarily for spending during retirement, including making safe financial advice more affordable and changing consumer disclosure rules to have a more drawdown focus.

It also suggests the removal of regulatory barriers to innovative, new retirement income products, including facilitating a simple process for moving consumers out of closed legacy products, reviewing the flexibility of prudential capital requirements and introducing a disclosure regime to allow consumers to easily compare retirement product features and fees.

Thirdly, it recommends helping people take control of their superannuation by simplifying how it interacts with other parts of the retirement system like the aged pension, aged care, and health care.

“The Retirement Income Covenant should only be the start of policy reform in retirement incomes if the Government is genuinely committed to helping retirees, who as the FSC research shows, are currently drawing down 17 per cent less income from their superannuation than an optimal system could achieve,” Mr Briggs said.

“Realising the superannuation system’s potential to maximise living standards in retirement and higher retiree spending would take the load off a Federal Budget with a two per cent structural deficit partly due to increasing health and aged care pressures that could be better met from individual savings.”

The research also found that around 100,000 more people would draw down on average an extra $10,000 in increased retirement incomes per individual every year on average and that the amount of superannuation benefits left each year as a bequest would be halved by 2060, ensuring superannuation is primarily used up as income for retirement.

Additionally, total system assets would be 12 per cent, or $1.6 trillion lower by 2060 with retirement phase assets representing 30 per cent, rather than 40 per cent, of total assets.

Mr Briggs said in an opinion piece in The Australian that the reluctance of Australians to draw down enough money in super during their retirement – which was resulting in money left over as inheritances – was leaving the sector exposed to pressure for new taxes.

He said the issue of super fund money “being left for future generations as bequests” had “become a lightning rod” for critics of the system.