It has been morbidly quipped that ‘post-retirement’ refers to the dead, as that is what lies next for retirees.
Of course, what post-retirement really refers to is the time after someone switches their income from a salary to a financial service product, typically in the form of a pension or drawing down a lump sum. This naturally coincides with them finishing full-time work and effectively becoming unemployed – the day of retirement.
But, this view is quickly becoming outmoded as it frames retirement as a single discreet event. A graduated process is a much more likely scenario, with people moving from full-time to part-time work and supporting themselves through a mix of financial service products and a salary.
This metamorphosis in retirement hints towards a key point, which came up time and time again at the seventh annual Post-Retirement Conference in Sydney – as an industry not enough is known about the latter stages of life.
This has curtailed the ability of funds to offer effective and attractive products to members, despite intelligence and passion being put into the development of them.
Case studies from Equip Super, NGS Super and MTAA Super show there have been early indications of investment success with pension products, but a low take-up.
NGS Super pension product, launch in 2014 and the most traditional of the three, has seen a 11.5 per cent return over 13 months, paying out a 6-6.5 per cent income for members and thereby leaving a 5 per cent gain over that period. But despite this relative success Anthony Rodwell-Ball, chief executive of NGS Super, was downbeat on whether it was catering for all his members’ needs, partly because it has received low take-up – only 16 so far.
Equip Super has also had low take up of its MyPension product, launched in 2014. Currently it is live with only 20 members, though several hundred pre-retirees have registered an interest.
MTAA Super was one of the first funds to bring an innovative pension product to market in 2013. Leeanne Turner, chief executive, described her funds experience as a learning curve that would benefit the scheme in the future in its choice of products, even though the partnership with Metlife, with whom the fund had developed the product, appears to be at an end because of low up-take.
An Australian consortium of academics, industry stakeholders and regulators, which has ten live projects examining the nation’s superannuation and retirement systems, is trying to address the knowledge gap in retirement. One project is focusing on the ruin-year, the time in a retiree’s life when their account balance hits zero.
Professor Deborah Ralston, executive director of the consortium, said that until you know when the ruin year is, it is very hard to make products or design policy. Another consideration is the upcoming changes to legislation and regulation coming out of the Financial System Inquiry (FSI), Tax Inquiry and Intergenerational Report.
According to Professor Kevin Davis, research director at the Australian Centre for Financial Studies and one of the committee members for the FSI , the design of products not only needs to take changes to regulation into account – an as yet unknown variable – but the whole of life after retirement.
“We need to be aware the issues are not just around super, but include accommodation, health and age care, which stretch beyond the scope of the FSI. It is much broader and complex,” he said. “Any attempt to design products needs to have in the back of the mind these other determinants.”
He added balancing out both sequencing and longevity risk will need to be considered, but “there is the difficulty of managing both together”.
Data science and behavioural biases are also needed to understand members with Paul Schroder, group executive of membership at AustralianSuper, saying that as a community not enough is known about retirement and retirees.
He said a comparison can be drawn with the structure of childhood. Everyone knows the process of children going to preschool, primary school, secondary school, and university. People are aware of the pattern of childhood to adulthood because there has been a lot of effort put into understanding that.
“I don’t think there’s been anywhere near the effort needed put into understanding the retirement phase. We get together and talk about volatility risk and inflation risk and a whole host of other risk, but I think the single most important risk we don’t really understand is retirement – we don’t really understand what happens with retirees. We don’t know what it’s like. We don’t know what they think about, what they feel,” Schroder said.
These are fundamental flaws as knowledge is a necessary precursor to building effective and attractive products.
Nicolette Rubinsztein, general manager of retirement and advocacy at Colonial First State Super believes, consistent with sentiment in the FSI, that members will want to go into an account based pension and an annuity concurrently.
Davis was supportive of this view believing that multiple products might be an appropriate option for members. He said that funds are muddling through how to provide post-retirement products, with Steve Freeborn, head of superannuation and investments at Rice Warner, adding that funds need to start somewhere and all of this was part of an evolution.