Adding to the jargon that fills the superannuation industry and confuses most people, two common words have taken on new meanings. They sound innocent, but when a Morrison Government minister uses the words ‘efficiency’ and ‘flexibility’ in the super debate, they now have particular definitions. And in neither case is it the way we previously understood superannuation.
Let’s find out what these words really mean.
Government draws on Retirement Income Review for changes
It’s unlikely to make it on to commercial television or trend on social media, but last week’s 2021 Policy Forum hosted by the Council on the Ageing (COTA) was a surprisingly lively affair. While both Treasurer Josh Frydenberg and Minister for Superannuation, Financial Services and the Digital Economy, Senator Jane Hume, have hinted at changes to superannuation before, they stepped up the rhetoric to another level. Some principles that have underpinned superannuation since the introduction of the Superannuation Guarantee in 1992 are under challenge.
The Policy Forum was also the first time that the three members of the Retirement Income Review appeared in public to explain their work. Chair Mike Callaghan did not hold back, saying that the industry trades off the public’s fear of running out of money in retirement, and he audaciously cited former Prime Minister Paul Keating as an example of the scare tactics.
Committee members Carolyn Kaye and Deborah Ralston talked about the need for better communication and for retirees to understand a wide range of support measures other than superannuation, such as health, pensions and aged care.
So there was much deflection from the importance of super, and as we have previously written about, the Review encourages retirees to live off their capital and raises the profile of the family home as a retirement asset.
This momentum is reducing the role of income from super investments as the way to fund a retirement, and it’s no surprise that Paul Keating comes out regularly to defend the system he feels is under attack. Two weeks before the COTA Forum, he told the ASFA Conference that it is essential to stick to the legislated increases in SG due to the rapid reduction in the number of workers paying taxes to finance welfare dependants such as age pensioners. He said ‘self provision’ must grow because:
“You are never going to get retirement adequacy off the back of the budget when there are only three taxpayers supporting each retiree.”
Back to Frydenberg and Hume, here are some telling extracts from their COTA speeches, and words on the hymn sheet which have new meanings.
All we need are flexibility and efficiency
The Treasurer and Superannuation Minister are reframing the retirement debate in key ways:
× Retirees should not have a better standard of living than they did when they were working.
× Retirees should spend their superannuation savings before they die.
× Workers should not be forced to place excessive amounts into superannuation.
Previously, and especially under Keating, the public was encouraged to save as much as possible for retirement to reduce dependency on the age pension. Now, the Government repeatedly uses the words efficiency (or efficiently) and flexible (or flexibility) to justify a new approach.
Let’s check the two speeches for clues. Jane Hume said at the start of her speech (bolding is my emphasis):
“The Review found that ‘more efficient use of savings in retirement can have a bigger impact on improving retirement income than increasing the SG’.”
For ‘more efficient’, read not leaving it behind for the kids. There is less need for SG when retirees learn to live off their capital. She said that retirees on average live on the income generated by super assets and die with 90 per cent of their savings still intact. That is not what superannuation is for.
“Indeed the Review found if people currently in their working lives and currently contributing to super via the SG were able to use their superannuation more efficiently when they get to retirement in the future, they would have higher replacement rates and better retirement outcomes than if the SG was lifted to 12 per cent.”
Come on, folks, it’s obvious. BE MORE EFFICENT.
And what about the other gem, flexible. Here it comes, complete with another ‘efficient’:
“This is why as a government and as an industry more broadly we must turn our minds to more flexible and more efficient products that allow retirees to use their super for a higher standard of living in retirement.”
How is it possible to make people feel more secure about spending when they may run out of money and worry about paying for aged care? Greater efficiency of course:
“But there is also this all-important issue how superannuation is being used. How do we help people have confidence to use their superannuation more efficiently to focus their planning on income streams as opposed to balances?”
So what is this magic pudding of products which funds retirement regardless of how long people live, the so-called CIPRs that are proving elusive for the private sector to develop?
All we need is flexibility:
“We all have roles to play here. The private sector can better innovate and develop flexible products.”
There was also much focus on the Retirement Income Covenant:
“At its core it will require trustees to have a strategy to generate higher retirement incomes for their members. The Covenant allows super funds the flexibility to tailor their retirement income strategy to their specific membership base.”
Ah, thank goodness. It will be a flexible product to solve the retirement needs of members, but whether anyone wants it is another matter.
Surely the Treasurer would not be left out of the buzz word talkfest. First, he eases in by quoting the Retirement Income Review:
“… a key finding of the Review with respect to superannuation, which is that “If people efficiently use their assets, then with the SG rate remaining at 9.5%, most could achieve adequate retirement incomes when combined with the Age Pension. They could achieve a better balance between their working life and retirement incomes.”
OK, so we only need 9.5%. But he’s the Treasurer, he was never going to allow a humble Super Minister to outdo him on ‘flexibility’. Let’s sneak in five f-words in consecutive sentences in case anyone misses it:
“The Review also identified the trade-off between flexibility and compulsion. The Review noted that our system has considerable flexibility if you want to save more for your retirement. But there is very limited flexibility if a person needs to save less to maintain their quality of life today. The COVID-19 early release of superannuation scheme was an example of how greater flexibility can benefit those that need it. Recognising the trade-offs, we gave Australians the choice of increased flexibility, allowing them to access their savings when they needed them most.”
Josh has not made it to Treasurer by half measures. In fact, far from undermining superannuation by giving people flexibility, the system is improved if personal preferences are met:
“While compulsion will remain an important part of our system, providing Australians with more flexibility should not be seen as an attempt to undermine the system overall. Far from it ... More flexibility also means better accommodating the many different circumstances Australians finds themselves (in) over the course of their lives ... we have introduced several changes over recent years to provide greater flexibility.”
But let’s not be outdone on efficiently either, which by now, we all know what it means – drawing down on capital:
“Treasury has estimated that at the current superannuation guarantee rate, using superannuation efficiently could increase the median person’s income in retirement by over $100,000 compared to how people typically draw down on their superannuation now.”
And there are many times when the Treasurer uses the word ‘effective’ to give the same meaning as ‘efficient’, so chalk that one up too.
What about the increase in the SG?
Besides influencing behaviour with this ‘efficient’ and ‘flexible’ babble, more tangible action by the Government will come soon in the form of a decision on the legislated increase in the SG from 9.5 per cent to 12 per cent, starting 1 July 2021. They they find support in the Review to remain at 9.5 per cent. Said Jane Hume:
“In measuring adequacy, the Review used a benchmark of 65-75 per cent of working life disposable income and found most people who start work today would be at or above the benchmark once they retire – even if the SG rate were to remain at 9.5 per cent.”
“Ever increasing amounts of superannuation contributions for your future retirement savings come at the expense of slower wage rises in your working life.”
“In the context of the SG … we must consider the implications of compelling people to sacrifice more during their working lives - by forgoing the wages they could be taking home today – that they could spend today – that they could use to pay off a home today – they forgo all that so that their balances are larger at retirement.”
There is the home coming into play. Superannuation prevents some people owning a home, a point influential Liberal, Tim Wilson, repeatedly pushes. Let’s ignore the possibility that releasing billions into an already overheated property market would push up prices and make home ownership even more elusive for many younger people.
Is Hume supported by Frydenberg on the 9.5 per cent sufficiency? Repeatedly.
“The retirement income system is, by definition, designed to provide retirement incomes. But the system cannot solely be about maximising income in retirement. Were it to seek to do so, it would clearly come at considerable expense to individuals during their working lives.”
“For a median earner, increasing the superannuation guarantee could increase their retirement income by $33,000, but lower their working-life income by around $32,000.”
“We must rightly carefully consider the implications of the legislated increase to the superannuation guarantee before 1 July this year – even more so at a time when our economy is recovering from the largest economic shock since the Great Depression.”
“The Review shows that if nothing changes, by 2060, one in every three dollars paid out of superannuation will be part of a bequest. This raises the question as to whether the answer to lifting the retirement incomes of Australians is more superannuation savings or better guidance about how to maximise their superannuation savings during their retirement.”
Let me guess … by using superannuation more efficiently with greater flexibility.
The meaning of efficiency and flexibility
So we now know what efficiency and flexibility mean, and it’s simpler than the jargon that makes superannuation such a complex system.
Flexibility is the choice to meet current needs and wants by putting less into superannuation for retirement. There’s a hint of not moving to 10 per cent or 12 per cent or alternatively, making it optional.
Efficiency (and its close cousin, effectiveness) is drawing down retirement capital instead of relying on income from super assets.
After all, as Senator Hume likes to remind us, “It’s your money.”
Expect to hear these buzz words a whole lot more as superannuation remains a political battleground.
Graham Hand was a media guest at the 2021 COTA Policy Forum.
Let’s check the two speeches for clues. Jane Hume said at the start of her speech (bolding is my emphasis):
“The Review found that ‘more efficient use of savings in retirement can have a bigger impact on improving retirement income than increasing the SG’.”
For ‘more efficient’, read not leaving it behind for the kids. There is less need for SG when retirees learn to live off their capital. She said that retirees on average live on the income generated by super assets and die with 90 per cent of their savings still intact. That is not what superannuation is for.
“Indeed the Review found if people currently in their working lives and currently contributing to super via the SG were able to use their superannuation more efficiently when they get to retirement in the future, they would have higher replacement rates and better retirement outcomes than if the SG was lifted to 12 per cent.”
Come on, folks, it’s obvious. BE MORE EFFICENT.
And what about the other gem, flexible. Here it comes, complete with another ‘efficient’:
“This is why as a government and as an industry more broadly we must turn our minds to more flexible and more efficient products that allow retirees to use their super for a higher standard of living in retirement.”
How is it possible to make people feel more secure about spending when they may run out of money and worry about paying for aged care? Greater efficiency of course:
“But there is also this all-important issue how superannuation is being used. How do we help people have confidence to use their superannuation more efficiently to focus their planning on income streams as opposed to balances?”
So what is this magic pudding of products which funds retirement regardless of how long people live, the so-called CIPRs that are proving elusive for the private sector to develop?
All we need is flexibility:
“We all have roles to play here. The private sector can better innovate and develop flexible products.”
There was also much focus on the Retirement Income Covenant:
“At its core it will require trustees to have a strategy to generate higher retirement incomes for their members. The Covenant allows super funds the flexibility to tailor their retirement income strategy to their specific membership base.”
Ah, thank goodness. It will be a flexible product to solve the retirement needs of members, but whether anyone wants it is another matter.
Surely the Treasurer would not be left out of the buzz word talkfest. First, he eases in by quoting the Retirement Income Review:
“… a key finding of the Review with respect to superannuation, which is that “If people efficiently use their assets, then with the SG rate remaining at 9.5%, most could achieve adequate retirement incomes when combined with the Age Pension. They could achieve a better balance between their working life and retirement incomes.”
OK, so we only need 9.5%. But he’s the Treasurer, he was never going to allow a humble Super Minister to outdo him on ‘flexibility’. Let’s sneak in five f-words in consecutive sentences in case anyone misses it:
“The Review also identified the trade-off between flexibility and compulsion. The Review noted that our system has considerable flexibility if you want to save more for your retirement. But there is very limited flexibility if a person needs to save less to maintain their quality of life today. The COVID-19 early release of superannuation scheme was an example of how greater flexibility can benefit those that need it. Recognising the trade-offs, we gave Australians the choice of increased flexibility, allowing them to access their savings when they needed them most.”
Josh has not made it to Treasurer by half measures. In fact, far from undermining superannuation by giving people flexibility, the system is improved if personal preferences are met:
“While compulsion will remain an important part of our system, providing Australians with more flexibility should not be seen as an attempt to undermine the system overall. Far from it ... More flexibility also means better accommodating the many different circumstances Australians finds themselves (in) over the course of their lives ... we have introduced several changes over recent years to provide greater flexibility.”
But let’s not be outdone on efficiently either, which by now, we all know what it means – drawing down on capital:
“Treasury has estimated that at the current superannuation guarantee rate, using superannuation efficiently could increase the median person’s income in retirement by over $100,000 compared to how people typically draw down on their superannuation now.”
And there are many times when the Treasurer uses the word ‘effective’ to give the same meaning as ‘efficient’, so chalk that one up too.
What about the increase in the SG?
Besides influencing behaviour with this ‘efficient’ and ‘flexible’ babble, more tangible action by the Government will come soon in the form of a decision on the legislated increase in the SG from 9.5 per cent to 12 per cent, starting 1 July 2021. They they find support in the Review to remain at 9.5 per cent. Said Jane Hume:
“In measuring adequacy, the Review used a benchmark of 65-75 per cent of working life disposable income and found most people who start work today would be at or above the benchmark once they retire – even if the SG rate were to remain at 9.5 per cent.”
“Ever increasing amounts of superannuation contributions for your future retirement savings come at the expense of slower wage rises in your working life.”
“In the context of the SG … we must consider the implications of compelling people to sacrifice more during their working lives - by forgoing the wages they could be taking home today – that they could spend today – that they could use to pay off a home today – they forgo all that so that their balances are larger at retirement.”
There is the home coming into play. Superannuation prevents some people owning a home, a point influential Liberal, Tim Wilson, repeatedly pushes. Let’s ignore the possibility that releasing billions into an already overheated property market would push up prices and make home ownership even more elusive for many younger people.
Is Hume supported by Frydenberg on the 9.5 per cent sufficiency? Repeatedly.
“The retirement income system is, by definition, designed to provide retirement incomes. But the system cannot solely be about maximising income in retirement. Were it to seek to do so, it would clearly come at considerable expense to individuals during their working lives.”
“For a median earner, increasing the superannuation guarantee could increase their retirement income by $33,000, but lower their working-life income by around $32,000.”
“We must rightly carefully consider the implications of the legislated increase to the superannuation guarantee before 1 July this year – even more so at a time when our economy is recovering from the largest economic shock since the Great Depression.”
“The Review shows that if nothing changes, by 2060, one in every three dollars paid out of superannuation will be part of a bequest. This raises the question as to whether the answer to lifting the retirement incomes of Australians is more superannuation savings or better guidance about how to maximise their superannuation savings during their retirement.”
Let me guess … by using superannuation more efficiently with greater flexibility.
The meaning of efficiency and flexibility
So we now know what efficiency and flexibility mean, and it’s simpler than the jargon that makes superannuation such a complex system.
Flexibility is the choice to meet current needs and wants by putting less into superannuation for retirement. There’s a hint of not moving to 10 per cent or 12 per cent or alternatively, making it optional.
Efficiency (and its close cousin, effectiveness) is drawing down retirement capital instead of relying on income from super assets.
After all, as Senator Hume likes to remind us, “It’s your money.”
Expect to hear these buzz words a whole lot more as superannuation remains a political battleground.
Graham Hand was a media guest at the 2021 COTA Policy Forum. 
