Superannuation Reform Proposal Could Cost Budget $1 Billion Annually
A bold proposal from the Actuaries Institute suggests moving retirees out of taxed superannuation accounts could cost the federal government approximately $1 billion per year. However, supporters argue this change would leave older Australians better off financially by reducing their tax burdens and enhancing retirement dignity.
Targeting Stranded Balances in Superannuation
The proposal specifically addresses "stranded balances"—super funds held by Australians aged 65 and over in accumulation accounts, which are generally taxed at 15 percent. Instead, the institute advocates for shifting these funds into tax-free retirement phase products. According to estimates, 1.56 million people over 65 collectively hold $326 billion in these accounts, resulting in over $2 billion in annual tax revenue.
Nick Callil, a co-author of the report, emphasized the need for normalization. "We need to normalise drawing down from super so more people can live with dignity in retirement," he said. "There is clear inertia when it comes to drawing down income, driven by the complexity of the decisions retirees are being asked to make."
Introducing the MyIncome Product
The centrepiece of the actuaries' proposal is a new retirement income product called MyIncome. Under this plan, APRA-regulated super funds would be required to offer this product to members starting at age 65. David Knox, another co-author, explained the approach: "We prefer a nudge rather than prescription. On your 65th birthday you'll receive an in-your-face offer: now's the time to take your income. Here's what you need to do."
The choice to switch would remain voluntary for retirees until age 75, after which transferring to an income product would become mandatory, as outlined in the proposal paper.
Budgetary Impact and Government Scrutiny
Despite the potential benefits for retirees, the proposal comes with a direct hit to the federal budget. The institute projects that if half of the stranded balances—around $160 billion—were moved into retirement income products, the resulting decline in tax collected from super funds would be "in the order of $1b per annum." This is noted against total expected super fund tax revenue of $30 billion for the 2025-26 period.
This fiscal trade-off is likely to attract sharp scrutiny from Treasury and the government, especially as Canberra considers how far to go in encouraging retirees to spend their super as intended. A spokesperson for Assistant Treasurer and Financial Services Minister Daniel Mulino indicated that while the government welcomes ideas from the sector, it is focused on improving retirement outcomes within the existing framework. "With more than 2.5 million Australians expected to retire in the next decade, strengthening the retirement phase of superannuation is a key focus for Government," they stated.
Economic and Social Benefits Argued
Mr Knox countered concerns about the budget impact by highlighting potential economic offsets. "The extra income spent will foster economic activity and increase the amount of tax received thereby negating the net impact to the budget," he argued. "And that's not considering the immense social benefit of retirees having more money in their bank account."
Mr Callil acknowledged a "spectrum of views" within the industry but noted that some super funds are "attuned to the proposal." Importantly, the proposal allows super funds flexibility to design accounts that suit their members' needs. "We're not wanting to stop funds engaging or communicating with members, but I think it's fair to say for a range of reasons—English as a second language or financial illiteracy for example—many funds aren't communicating with their members clearly," he added.
Pathway to Implementation
For the proposal to become reality, the paper indicates that legislation would need to be drafted and a transition phase implemented. Mr Callil cautioned that it is "still early days . . . three or four years away at the earliest." However, he emphasized that "the mindset change can start now," urging stakeholders to begin considering these reforms to better support retirees in the future.
