The Retirement Income Review (RIR) says there has been "insufficient attention on assisting people to optimise their retirement income through the efficient use of their savings" (p 19, emphasis in original).

It also says today's cohort of "retirees are generally reluctant to draw down their savings in retirement due to complexity, little guidance, reluctance to consume funds that are called 'nest eggs', concerns about possible future health and aged care costs, and concerns about outliving savings. Currently adding to concerns is uncertainty around the impact of the COVID-19 pandemic."

As the RIR points out, most retirees – even those who rely on the aged pension for most of their income – die with more assets than they had when they first retired (see p 432 – 433). For homeowners, this will be because of asset price increases. For others, it will occur because they live frugally.

Each of the reasons provided by the RIR are worth discussing in detail.

'The retirement system is complex'

With all due respect to those who worked on the RIR, this is a statement of the bleeding obvious. In CA ANZ's submission, we pointed out that "Australia's retirement income system is absurdly complex (which reflects poorly on successive governments) and all areas of this system need to be better understood not only by the community but also by many participants in the sector.

"However, before any effort is made to improve the system, perhaps it might be better to simplify it and then explain this revised system."

It is almost impossible for a retiree to successfully navigate their way around the system as a whole and maximise outcomes.

It is with some sadness that we have to admit that it is unlikely that the retirement income system will be simplified in the near future. 

For example, there have been two major attempts to simplify the super system over the past 30 years – in 1993 and 2006. On both occasions, it would be fair to say that the rules changed and some complexity was removed, but they did not make the system simple and it was back to operating within a legislative labyrinth after about five years.

It is with some sadness that we have to admit that it is unlikely that the retirement income system will be simplified in the near future.

'Little guidance'The RIR says most retirees do not seek any advice about retirement income planning, with the major reasons being "cost, small finances and lack of trust".

If the number of financial advisers continues to decline, an emerging issue may be an inability to find someone who can provide assistance.

It is well recognised that the overall population has very low levels of financial literacy. Successive governments have done remarkably little to educate people about how the system works and why knowledge in this area is important.

CA ANZ has had a lot to say recently about financial advice and the need to provide flexibility to accountants in public practise to assist their clients.

Reluctance to consume funds that are called 'nest eggs'

The Council of the Aging told the RIR, "retirees express concern or distress about the difficulty of living off the earnings from their retirement lump sums. The suggestion that they should be drawing down on the lumps sum to improve their income is strongly resisted, even when they are of an advanced age and have a significant lump sum." (our emphasis – p 432)

The RIR accepts research by the Gratton Institute that examined data from successive ABS Income and Housing surveys that concluded that retirees generally don't spend their nest egg. This finding applies to most retirees except some single-age pensioners.

A 2017 survey found that most age pensioners preserved their wealth and left large bequests.

Retiree health and aged care costs

Both health and aged care costs, which have been increasing over the past 20 years, are heavily subsidised by the government. However, many people don't want to be on a waiting list for surgery or treatment that may not be considered urgent.

In relation to aged care costs, the government picks up more than 90% of the cost of home care and up to 81% of the costs of residential care.

The ARC Centre of Excellence in Population Ageing Research in 2019 claimed that "many under appreciate the presence of the aged-care safety net when deciding about their precautionary savings. They also often don't realise that they needn't pay for care with a bond."

Concerns about outliving savings

As noted previously, most retirees do not use their capital to live. Instead they live off the income from their investments.

The RIR spends considerable time talking about the use of Comprehensive Income Products for Retirement (CIPRs) and deferred annuity style products.

Lifetime annuities and pensions have never been particularly popular in Australia even when interest rates were extremely high in the late 1980s and 90s. We don't expect retirees to suddenly fall in love with these types of products en masse. 

An increase in the popularity of these products would require significant refinements to their proposed structure and a great deal of public education. In any event, it is likely that the community would not react well if it became mandatory for these types of products to be used.