Independent consulting firm Rice Warner has included in its pre-Budget submission for 2016-17 a recommendation that won’t grab any headlines. Yet if accepted, the initiative is likely to markedly improve member interest in super and their willingness to save more – without adding a dollar to Budget outlays.
The recommendation – based on the findings of a research paper published almost two years ago – is that the large super funds be allowed to offer fund members in a marital relationship the option of having a joint super account.
At least two-thirds of Australians are in a long-time marital relationship at the time of their retirement. And the vast majority would presumably share most of their personal financial liabilities and savings with the exception of super, unless they are members of a family SMSF.
Rice Warner emphasises that the availability of joint super accounts should extend to long-term de facto couples including same-sex relationships.
The potential benefits of joint super accounts are powerful and numerous – in addition to possibly easing pressure on the Age Pension over the long term.
First, the number of super accounts should be significantly reduced. Some 15 million working Australians hold about 32 million super accounts. The ability to hold joint accounts would encourage spouses to bring all of their super savings together in a single account, including super currently held in multiple accounts by individual spouses.
Rice Warner estimates that three to seven million super accounts would move or consolidate if joint accounts were introduced.
A single set of administrative fees would probably apply to each joint account – providing an immediate fee saving for joint account holders. And a reduction in the number of super accounts but not membership numbers may lead to funds lowering their standard administration fees over time as fund efficiency improves.
Despite the high proportion of members in marital relationships, most large super funds treat each of their members has if they were single.
A large super fund cannot accurately estimate the possible size of members’ retirement incomes without knowing their marital status let alone details of their assets held outside the fund. This can make it difficult to design appropriate products, particularly for a rapidly-ageing population.
Further, if couples were able to have joint super accounts in large super funds, they would be in a much better position themselves to assess the adequacy of their combined super savings to achieve their targeted standard of living in retirement.
In turn, couples with joint super accounts are much more likely to discuss their super savings together and to jointly decide on superannuation investment and contribution strategies.
It seems ironic that so many couples in marital relationships have joint bank accounts, often with relatively modest balances, yet their super savings of much greater value are separate – even though both spouses might be members of the same big super fund.
There is also a somewhat psychological factor to consider in regard to joint super accounts that would no doubt trigger the interest of behavioural economists. It is widely accepted that the bigger our retirement savings, the greater our likely interest in those savings.
The experience of SMSFs provide somewhat of a blueprint to exhibit the potential benefits of joint super accounts being available from large APRA-regulated funds.
As Rice Warner notes, SMSFs are a proxy for joint super accounts: "The majority of SMSFs are set up for married couples and most co-mingle the assets of the fund; so the benefit is effectively a joint superannuation account with each partner’s share identified."
SMSF couples would tend to focus closely on the total asset value of their SMSF, particularly as those assets grow – not on the separate savings of each member.
If members of big funds were allowed joint accounts, their focus would no doubt be similar. It could be called the SMSF-effect.
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Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment. |
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