Without doubt, Australia’s superannuation system is a world-leading accumulation system. But when it comes to managing the retirement phase of people’s lives, there are improvements to be made.
One MyRetirement product can’t rule them all
By Mark Eggleton
Without doubt, Australia’s superannuation system is a world-leading accumulation system. But when it comes to managing the retirement phase of people’s lives, there are improvements to be made.
Yet we’re not alone, the simple fact people are living longer means many countries are confronting this same longevity risk.
Bearing this in mind, the Federal Government is examining how financial institutions can create Comprehensive Income Retirement Products (CIPRs) with the potential of creating mass-customised products, which in some way will provide a guaranteed income for super fund members.
What this means for consumers is part of every individual’s superannuation would need to be preserved post-retirement in a CIPR, which would include a guaranteed income component and potentially a level of insurance to cover health issues as a person gets ages.
Unfortunately, as is often the case, the Government may have bitten off more than it can chew with its desire to step in and regulate retirement.
The path ahead
Speaking at the Financial Services Council Leaders’ Summit in Sydney as part of a panel titled “Retirement Income Products; are we on the right track?”, Treasury’s Darren Kennedy from the Retirement Income Policy Division said after much industry consultation, there is general agreement around the need to create a MyRetirement product. But, he says, there isn’t much agreement on how it can be done.
According to Mr Kennedy, challenges include whether CIPRs should be compulsory and whether they would be in the best interest of every fund member, especially when some members might have particularly low super balances at the time of retirement.
Fellow panellist and UniSuper independent director Nicolette Rubenzstein strongly believes CIPRs will need to be compulsory.
“Ultimately, they will need to be compulsory. But you have to allow for some sort of client exemption in situations where it doesn’t make any sense to have the product in place.
“There’s going to be cases where it’s not going to make any sense. For example, if a person has a health-related issue, a low life expectancy or a low fund balance,” she said.
NAB’s General Manager of Customer Experience – Super, Lara Bourguignon agreed a mandatory CIPR would not work.
“We don’t have a universal cohort of members so we can’t have a mandatory CIPR, but having a framework with components that are mandatory is the right way to go,” she said.
A range of CIPRs required
Ms Rubenzstein said we definitely need “different CIPRs for different profiles.”
“One of the most obvious reasons is what you do with someone with $50K as opposed to someone with $500K is quite different so I think the case is quite strong.”
For Ms Bourguignon, a key reason as to why we need to create a range of CIPRs is “you don’t want to create biases in products that favour white collar over blue collar workers.”
“We really need to make sure we’re putting our members into the right solution for them and creating the right sort of products for members whether it’s health or wealth. We also need to consider wealth outside of super as well. Every member has very different needs and wants, so we just need to make sure the right framework is in place,” Ms Bourguignon said.
What’s stopping the process?
Panellist Jeremy Cooper, Chairman of Retirement Income at Challenger and the architect of the government’s 2010 review of the superannuation system, said his company supports the idea of making CIPRs mandatory.
“I think what we’re trying to do is iron out the randomness of things. Imagine a world where two neighbours are in different super funds where one is being offered a CIPR and one isn’t. They’ve both been in MySuper products all their lives and by sheer randomness one is being offered a lifetime product and one isn’t offered one - what we want to do is iron out these random outcomes,” Mr Cooper said.
As for how quickly we can reach consensus on creating a MyRetirement product, Mr Kennedy said it’s vital industry steps up to the plate and shows some leadership in the CIPR space.
Ms Rubenzstein said the super industry has paused somewhat on the creation of CIPRs, especially during the government consultation phase.
She said you can’t expect industry to be launching things during the consultation process, considering there will be quite restrictive requirements around CIPRs and they likely changes to products from this.
“Like it or not, a lot will be resting on the consultation process,” Ms Rubenzstein said.
This conversation was part of the 2017 FSC Leaders Summit in Sydney on July 26.