OPINION | Too many superannuation fund trustee boards are biding their time when it comes to delivering next-generation retirement income products.
The majority of superannuation funds have no clear strategy for servicing the needs of retirees and pensioners, and there remains a scarcity of solutions on offer to allow members to better manage the various risks they face in retirement.
Until now, the flow of people retiring with substantial balances has been barely a trickle. But with the population ageing and the super system maturing, that trickle is about to become a flood.
To stimulate greater action, Treasury has been consulting on the development of a framework for comprehensive income products for retirement (CIPR), or MyRetirement products.
It is not so much the accumulation of retirement savings but the income those account balances generate in retirement that counts. After contributing over the years, and in many cases making huge sacrifices, Australians deserve to know that they will have enough income to live securely in retirement.
Treasury has consulted extensively on its preferred regulatory approach for CIPRs and its discussion paper flags a number of issues and alternatives for further consideration. It follows progress already made in removing some regulatory impediments to product innovation, although we still await a decision on the social security treatment of these products.
Time for action
It is disappointing that the discussion paper hasn’t generated as much attention within
the industry as it deserves, and certainly less than other superannuation reviews going
on at this time.
While the prevalence of small account balances is perhaps one reason for the underwhelming response, compounding factors are that the government has said it won’t force trustees to offer a CIPR and, if trustees do offer them, the government prefers that each fund provide a single, mass-customised product. There is some debate as to whether these approaches will lead to the best outcomes for members.
Under the proposed rules, trustees may decide it is all too difficult and do nothing. Too many trustees are ill-prepared or simply believe they still have plenty of time to prepare for their members’ future retirement income needs.
But trustees have a duty to act in their members’ best interests. As more members enter or approach retirement, funds will need to pay more attention to how they can deliver retirement incomes. Offering good retirement solutions will be critical for member retention. A prudent trustee board will have a systematic and regular approach to understanding members’ needs, including their retirement income needs.
The missing piece
As it stands, the government’s CIPR proposal offers trustees the binary option of following specified product requirements or doing nothing at all. What is missing is an overarching framework that encourages trustees to make progress at an appropriate pace in helping members transition to retirement.
An appropriate starting point is for trustees to consider the impact of demographic change on the movement of members into retirement phase and the implications for the fund’s strategy and business plan. Trustees should develop a retirement benefit strategy for their fund that includes consideration of the needs of the membership, the retirement products and options to be offered, and whether they will be manufactured internally or by a third party.
There is an important role for the industry to play in helping shape the market and support members. This includes setting industry product disclosure standards and guidelines relating to CIPRs. It is in the best interest of funds to take a co-operative approach to building the necessary confidence among their members, now and into the future.
Patricia Pascuzzo is the founder and executive director of the Committee for Sustainable Retirement Incomes.