A major element of the DBFO Tranche 2 is transforming super funds from product-centric to more service-oriented entities. This change is driven by the impending wave of retirements, with an estimated 3.5 million Australians set to retire over the next decade, most of whom could benefit from financial advice. Given the scarcity and cost of traditional financial advice, the government has positioned super funds as key players in providing accessible guidance at scale.
Critics voice concerns about the possibility of funds guiding members toward their proprietary products and delivering inadequate advice due to its limited scope. However, existing regulatory frameworks mitigate the risk of significant harm to retirees. Without this guidance, many retirees would likely stay with their existing funds without making any informed decisions, potentially resulting in less optimal retirement strategies.
The potential drawbacks of not having advice through super are numerous. These include retirees remaining in accumulation accounts when not advantageous, mismanaging drawdowns, making unsuitable investment choices, not utilizing lifetime income streams, or incorrectly applying for Age Pension benefits. For members with modest to middle-sized balances, even imperfect guidance through super could significantly improve financial outcomes compared to navigating retirement independently.
For advice through super to reach its full potential, the pathway forward involves several strategic actions. Policymakers should expand the scope of advice to incorporate retirees' objectives and preferences more comprehensively. Additionally, funds must transparently communicate the advisory services' scope and any critical assumptions to their members. It's also crucial to create pathways for those with complex needs, ensuring they receive personalised financial advice tailored to their situation.
Overall, the introduction of advice through super offers a promising solution for assisting many retirees, who would otherwise be left without any formal guidance as they transition into this critical life stage. While not a panacea, this initiative lays the groundwork for improved financial security in retirement, with the potential to increase demand for comprehensive financial planning in the future. The success of such reforms will depend on their effective implementation and recognition of super funds as essential service-oriented entities, ready to adapt to a more advisory-focused role.
