EDITOR’S LETTER | The government is going to stop short of forcing superannuation funds to offer all retiring members a comprehensive income product for retirement (CIPR) anytime soon. Given that, however, it should at least require all funds to have an appropriate framework in place to improve governance around what pension phase products they offer.
In July, I facilitated a panel at the Financial Services Council’s 2017 Leaders Summit on the topic ‘Retirement Income Products: are we on the right track?’
The timing was perfect, coming just a few days after Treasury closed the consultation on its review into developing a CIPR framework. In light of this, the crowd was understandably keen to hear from Darren Kennedy, of Treasury’s retirement income policy division.
He revealed that his unit had received more than 50 submissions and met with over 100 organisations as part of the review. While it was still early days in sifting through the submissions, he said the overwhelming theme was “a lot of agreement about the need to shift the policy settings to retirement incomes but a lot of disagreement about how
to do that”.
I tried to press him on why the terms of reference had specifically shied away from suggesting funds should be forced to offer CIPRs to all retiring members – given that seemed to me a pretty central part of the vision for the proposed regime as outlined in the 2014 Financial System Inquiry.
While stressing he couldn’t speak to the government’s motivations, Kennedy said that it was difficult to make something mandatory when the underlying products don’t exist.
He also noted that the government needed to be careful about forcing compulsion when for some funds, typically those with very low average account balances, it is unlikely to be in their members’ best interests.
The Actuaries Institute of Australia, Centre for Sustainable Retirement Incomes and the Australian Institute of Superannuation Trustees are among those organisations that have told Treasury all super funds should be required to produce a CIPR framework that outlines how they are making decisions about what retirement income solutions to develop and offer to their members – including whether these should include annuities or other pooled-risk products.
This is at the least a necessary interim step the government should take.
In proposing a CIPR framework, the FSI controversially posited that it could deliver average retirement incomes that were 15 to 30 per cent higher. Kennedy said Treasury had heard from many people who believe that is achievable and met with a number of funds “who are already developing new and innovative solutions”.
So that brings us back to the question of whether funds should eventually be compelled to offer CIPRs. The FSC has suggested a transition period of five years, which seems a reasonable lead time – so long as the new rules aren’t too prescriptive.