RETIREES face a potential freeze on their superannuation accounts to prevent them from withdrawing all their savings in one lump sum.
As more baby boomers hit retirement age, industry experts said superannuation companies could soon have more money being taken out by retirees than is being put in by workers. The "negative cash-flow" would leave funds no option but to limit withdrawals, Towers Watson managing director and former AMP CEO Andrew Boal said.
Menzies Financial Planning Senior Planner Geoff Madafiglio believes this will happen sooner than people think.
"If people want to take out all of their money at once then many funds will have to limit or freeze withdrawals while they sell some more of their assets to free up more cash," Mr Boal said. "The problem is that funds have a lot of money tied up in 'illiquid' investments such as commercial property or infrastructure, and you can't get your cash out of those holdings overnight."
There will be a 33 per cent increase in the number of people retiring between now and 2014.
Geoff will be speaking about this and how you can take control of your Super on the 6th of Dec at a Special Superannuation Briefing on the North Beaches, Menzies Financial Group head office
Stuart Barton of Challenger Financial Services believes the majority will want immediate access to all savings.
"People have been waiting all of their lives to get their hands on this cash and various studies have shown most people take all of their money out as soon as they can" he said. "The majority of cash is taken out to pay off the mortgage or buy an investment property, even to give to kids or go on big holidays."
Mr Barton said there was now broad consensus between industry, government and academics that laws were needed to put an upper limit on how much can be withdrawn from super in one go.
"A cash limit would be unpopular," he said. "But remember much of the money in a super fund belongs to taxpayers, so the government has a right to ensure that the super system is fulfilling its purpose and making people self-sufficient in retirement."
Demographic economists Macroplan Australia CEO Brian Haratsis said Australia was reaching a crisis point.
"This is going to get a lot worse in a few years because the workforce will be retiring with much larger amounts of cash than they are now, and that will place a much greater strain on super funds' liquidity," he said.
Association of Super Funds Australia CEO Pauline Vamos said fund freezes cannot be ruled out, especially if the global economy takes a turn for the worse, and that the superannuation system could not allow everybody access to all of their cash indefinitely.
"I don't believe liquidity will be a problem in the next three years, it is more likely to come in five or six years - unless we get another GFC."
Article by Nick Gardner (The Daily Telegraph) and commented on through out by Geoff Madafiglio from Menzies Financial Planning
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