RETIREES FACE A "PERFECT STORM"
Written on the 13 May 2015
THE combination of record-low interest rates and government plans to tighten age pension eligibility has brewed a "perfect storm" for retirees, according to CANSTAR.
The finance analyst says it has never been more crucial to minimise both tax on income and investment fees on retirement income.
CANSTAR research manager Mitchell Watson says the firm's analysis of account-based pension fees shows significant variation.
"It's been a challenging time for self-funded and partially self-funded retirees for several years now, and I think it's fair to say that most have lost hope of any return to high cash returns in the medium future," Watson says.
"Many also don't want to take a greater risk with their money.
"So in a low-return environment, a tax-free investment platform, such as an account-based pension, can be ideal for some however a focus on investment fees is also more important than usual."
Watson says retirees who roll over superannuation into an account-based pension without considering fees risk getting a costly start to their savings management.
CANSTAR researched 66 pension products from 59 providers to determine variances across different account balances.
The minimum cost of fees for a $100,000 pension was $550, in comparison to a maximum of $2590.
"There's obviously a significant difference between the minimum and maximum fees charged on a certain investment value across the finds assessed," Watson says.
"Fees aren't the be all and end all, but they should definitely play a major role in determining an allocated pension platform for retirement."
Online engagement will play a key role in encouraging retirees to become more focused on value for money.
ANZ head of direct super and investments Patrick Clarke says the rise of mobile banking has made it easier to develop an online presence.
"The vast majority of members are disengaged with their super because they only hear about it once a year," Clarke says.
"Australians look at their banking regularly, and if their super balance sits alongside their banking they are by default more engaged.
"The single biggest disruption to the super industry remains the integration of banking and superannuation."
CANSTAR has assessed account-based pensions for three investor profiles and rated available products.
Click here for the full report.