Lifetime pensions from federal government urged to make super system easier

Retirees should be offered a lifetime pension from the federal government, drawn from their savings, in order to make the superannuation system simpler, a report has urged.

The Grattan Institute report on superannuation has recommended retirees use a portion of their super balance to buy an annuity from the government to guarantee their income for the rest of their lives.

Under the proposal, 80 per cent of super balances above $250,000 should be used to purchase the annuity, with the report suggesting incomes of retirees could be boosted by as much as 25 per cent.

Grattan Institute director Brendan Coates, who wrote the report, said few retirees were using their retirement savings as intended, with super balances growing for decades after people stop working.

“This is turning Australia’s multi-trillion-dollar compulsory superannuation system into a massive inheritance scheme,” he said.

“This is not how it was meant to be. Too few retirees are enjoying the benefits of the savings they built up during their working lives.”

The report said under the current system, 65 per cent of super balances remained unspent by the time retirees reached the average life expectancy.

The plan for government annuities to be bought using super funds was one of seven recommendations the institute put forward.

Other recommendations included calls for the federal government to set up a free service for retirees to plan their retirement incomes.

The report also urged for a top-10 list of the best super funds to be created, with retirees to be steered towards using those for their retirement funds.

It’s estimated more than 80 per cent of retirees use account-based pensions in their super funds, meaning people often have to manage spending to avoid outliving their savings.

“The Grattan Institute blueprint for better old age in Australia would let retirees stress less, spend more, and truly enjoy their retirement years,” Mr Coates said.