Retirement Incomes

By Lachlan Colquhoun

The Federal Government could look at the definition of intra fund advice to ensure that super funds offering the new breed of 'comprehensive income products for retirement’ – or CIPRs – would not be considered to be offering financial advice to members, an officer from the Commonwealth Treasury said.

Robert Jeremenko, the Division Head of Retirement Income Policy Division at the Treasury, told the FSC 2018 Summit that the intention was to “accommodate” the offer of a CIPR within the definition of intra fund advice.

“The Government wants to establish this, that the offer of a CIPR will not be financial advice, and we won’t mandate financial advice with the taking up of a CIPR,” said Jeremenko.

“So if that means that we need to look at the definition of intra fund advice then we will take some soundings.”

The advent of CIPRs into the superannuation market was one of the main topics at the Summit discussion on retirement incomes.

Originally suggested by the Murray enquiry into financial system in 2015, the Government recently completed a consultation process with industry on a new CIPR framework, with the product expected to be introduced by July 2020.

CIPRs are planned as a response to the issue of longevity risk in the superannuation system, caused by the demographic changes of longer life expectancy.

Michael Rice, chief executive at Rice Warner, said that in the “complex” super environment, it may be worth looking at the definition of financial advice as it related to super funds.

“Super funds would love to be able to give people a nudge along with advice,” said Rice.

“They have not enough advisers and too many members.”

Rice said that ideally people should seek advice two or three years before they retired, but few people were currently prepared to pay for that comprehensive advice.

Superannuation advice, he said, was “delivered quite badly at the moment.”

“Most people site in account based pensions with the same asset allocation structure, which is a do nothing strategy,” said Rice.

From Challenger Limited, Chairman-Retirement Income Jeremy Cooper said the current super system was designed at a time when people spent only short periods in retirement.

“We built super for people who retired at 55 and you might live until about 75,” said Cooper.

“No way were we building a system for people who were living solidly into their 80s and 90s.

“We were building a lump sum system which game you a lump of money for a fairly short retirement.”

Now that demographics had changed, the task was to build a different structure “using different instruments and different ideas for really long retirements.”

“People say things like they need a 'retirement paycheque,’” said Cooper.

“They say 'I want something regular like I had when I was working.’”

The panel also discussed how super fitted into Government funded responsibilities such as aged care and the aged pension, questioning if super rules should be balanced and measured against these needs.

Michael Rice put the funding trends into perspective, telling the Summit that the aged pension had gone from comprising 2.9 percent of GDP at the time of the Government’s first Intergenerational Report in 2002, to 2.7 percent today.

The first IG report had forecast pensions would rise to 4.6 percent of GDP by 2042, but means test tightening and high super balances had combined to create a different trend.

“Our modeling shows that it will come down to below 2 percent of GDP over the next 20 to 40 years,” said Rice.

“That does give the Government some grace to divert money into aged care which today is 1.3 percent of GDP.”