VicSuper’s first comprehensive income product for retirement (CIPR) has yet to meet the member take-up target, but expectations are high that it will, and valuable lessons have been learned.
The underperformance has been attributed partly to difficulties in communicating CIPR’s complexities, and partly because of a lag between the issuing of statements of advice (SOAs) and implementation of the advice.
The fund launched the CIPR in June 2015 in partnership with annuity provider Challenger. The pension product uses an income-layering model and can only be taken up if the member has received advice.
Michael Dundon, chief executive of VicSuper, said a common mistake a lot of super funds make in designing CIPRs was to lump members together in one category.
“What is emerging is there needs to be a range of different post-retirement products, so the needs of someone who retires with, say, $80,000 as their balance are going to be very different from someone who retires with a $500,000 balance,” Dundon said.
“In our case our average balance is about $400,000 at retirement, so we think a suite of product options is the best solution. For others in the industry, that’s the challenge: Don’t think about one product, think about a range of products that may be appropriate.”
He added that – in the current environment of market volatility and increased member activity of switching to cash and lower-risk investment options – there has been a growth of interest in guaranteed income products such as annuities.
“We have done a number of statements of advice through our financial planning team and it has had strong support. The conversion into actually taking the product is a little way away, because, while members have received the advice, they are not due to retire for another two or three years, so there’s a lag between issuing SOAs and the product being taken-up,” Dundon said.
“[We had] probably underestimated the complexity of the product and how to get the message across to members.
“We are learning a lot about how to position it and how to give good advice on it, and how to market it effectively. It is starting to build but we are still a fair way short of the 50 target. My sense is as these SOAs get implemented it will build pretty rapidly from there.”
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He added VicSuper is starting to explore other CIPR options. The two issues major issues they are looking to tackle are longevity and sequencing risk.
He sees a deferred annuity-style product, if the regulatory environment changes, as potentially being a very appropriate solution for a lot of people.
“There are also possibly products that have a lower volatility that might be useful in the marketplace for some members.
“This is the start of the journey for us. We will look for more opportunity to create some more tailored products that are beneficial for that post-retirement section.”