UniSuper is to launch a comprehensive income product for retirement within two years that will give members the flexibility to dial up or down income.
The flexibility recognises the changing needs of members in retirement, a freedom it will also extend to the accumulation phase by offering the flexibility to members to exchange some of their 24 per cent contributions (17 per cent employer/7 per cent employee) for salary.
This latter freedom will allow members to dial down contributions to the 9.5 per cent statutory minimum, it will also allow members the option to move out of UniSuper’s defined benefit scheme when it suits their personal circumstances, and then to return.
The flexibility makes the product, dubbed FlexiChoice, unique, but the primary purpose is to give a default lifetime pension to members where it does not currently exist.
Kevin O’Sullivan, chief executive of UniSuper, answered concerns that the flexibility might lead to reckless member decisions.
“That is a paternalistic view which is understandable, but the alternative is viewing members as adults who cannot make decisions and saying we know better,” he said. “If you think of the holistic financial best interest of members, it might be better for someone to pay off their mortgage when they are younger and put more into super when they are older. I do not anticipate a lot of reckless behaviour; we think members will use it wisely.”
Members can take lump-sum withdrawals of $2000 or more at any one time.
The product echoes the findings of David Schneider, head of research and quant methods at UniSuper, together with Paul Newfield and Jeffrey Chee of Towers Watson, on what is the optimal investment and income drawdown model for defined contribution members in retirement.
Schneider, who was one of the actuaries who worked on the creation of FlexiChoice, concluded from this research that “as your spending needs change, as your health status changes, as you learn more about the investment scenarios, you adapt your investing and your spending”.
Schneider is leaving his full-time role at UniSuper to work independently on this research in January, but will continue to work for UniSuper for a few days each month.
UniSuper expects to open FlexiChoice to members in 2017–18, using the interim period to make the necessary system and process changes, educate members and support employers in transitioning to the new product.