Retirees missing out on $2.5 billion due to common superannuation mistake: ‘Clear opportunity’

The Australian government is being urged to change superannuation laws to help ensure Aussies don’t miss out on retirement benefits. Around two million Aussie retirees are missing out on billions of dollars each year by not transitioning their super to the tax-free retirement phase, new research has revealed.

When your super is in the accumulation phase, the investment earnings are taxed at 15 per cent. However, when your super is in the retirement phase, the investment earnings become generally tax-free up to your transfer balance cap.

You can move your super from the accumulation to the retirement phase when you retire or meet another condition of release. But this doesn’t happen automatically.

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New research commissioned by super fund HESTA found that around 1.8 million Australians had missed out on an estimated $2.46 billion in additional investment earnings last financial year because they remained in the accumulation phase when they were eligible to move into the retirement phase.

Moving to retirement phase products could boost total retirement income by up to 12 per cent, the modelling found, or as much as $99,000 compared with someone who delayed the transition by four years.

Without change, the industry super fund claimed an estimated 2.9 million Aussies could be impacted and lose more than $5 billion annually by 2030.

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HESTA is calling for changes to allow funds to actively assist members to transition at the right time, while maintaining opt-out options.

“It’s about making the system work more efficiently to improve retirement outcomes,” outgoing HESTA CEO Debby Blakey said.

“This reform has the potential to put billions of dollars into Australian retirees’ pockets and help boost the local economy.”

Under the proposal, funds would implement “soft defaults” that would automatically transition eligible members to retirement phase products at a certain age when they are no longer making contributions.

As Australia’s population ages, the super fund argued the move would also reduce pressure on the age pension system by helping retirees maximise their income.

“The research shows a clear opportunity to deliver better retirement outcomes through sensible policy reform,” Blakey said.

“By modernising how super funds can support their members’ transition to retirement, we could help unlock significant additional benefits for our members and have a positive impact on the broader economy.”

Advocacy group Super Members Council is also calling for reform and has also argued for automatically transitioning eligible accounts to the retirement phase when eligibility requirements are met.

It found around 700,000 Aussies over 65 who were not working full-time still had their super sitting in an accumulation phase account. This means retirees could be paying an extra $650 in taxes each year.

While some inactive accounts belong to people who are still working and adding to other accounts, the group found many people don’t make the switch because they were disengaged or didn’t know what to do.

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