The majority of retirees are not using their superannuation funds as intended, due to the overly complex current system, says the independent thinktank.
Older Aussies are, in fact, hoarding their retirement savings, worried they will outlive their nest egg.
To encourage retirees to spend without fear and create a simpler superannuation system, the Grattan Institute is calling for the Australian Government to create a lifetime annuity for retirees in exchange for them offering up 80% of their superannuation balances above $250,000.
The calls for major reforms come as the researcher found 80% of Aussies find the process complex, while a further six in 10 are financially stressed out about retirement.
Combined, older Aussies are holding onto their wealth, with superannuation balances growing well after a retiree stopped work.
“This is turning Australia’s multi-trillion-dollar compulsory superannuation system into a massive inheritance scheme,” said Grattan Institute housing and economic security program director Brendan Coates.
Grattan said under the current system, four in five retirees were in account-based pensions, which requires the retirees to manage their spending and to try and avoid outliving their savings.
About 200,000 Aussies retire from the workforce each year with significant retirement balances and almost no guidance on how to use these funds.
Half of those using an account-based pension to draw their super at legislated minimum rates, which leave 65% of super balances unspent by average life expectancy.
On top of creating a lifetime annuity, Grattan wants the Government to create a Top 10 list of the best superannuation funds in the country and to steer retirees towards those funds, by asking APRA to assess a performance-test on all account-based pensions.
The thinktank’s research shows this would unlock $70,000 in additional retirement funds over a retiree’s lifetime.
Will the Government take this recommendations into account?