OPINION | The dust is starting to settle on the government’s discussion paper for Comprehensive Income Products for Retirement (CIPRs), with Treasury now scrutinising submissions.
It wouldn’t surprise many people to hear that Challenger* supported the government’s initiative to provide retirees with a higher standard of living and more security.
What might be more interesting to readers is where we made suggestions about how CIPRs could work more effectively.
To start with, we support Treasury’s suggestion to rebadge the CIPR framework MyRetirement – a far better name that hints at the complementary role to MySuper.
So, what were the areas where Challenger took a different view?
The broad idea of a single mass-customised MyRetirement offering with no advice, subject to disclosure and fitness-for-purpose tests, is something we support. However, some funds will want to do more and will be able to segment their membership by assets, age pension entitlements and other factors.
Those funds will want to design a MyRetirement offering for each of those segments, while still offering only one solution to each retiree. Trustees should, therefore, be able to have multiple versions of their MyRetirement products. It is also important for MyRetirement to be offered across a range of platforms and distribution channels, rather than designed to meet only one segment.
After a proposed three-year transition, a firm date should be set for trustees to be required to offer a MyRetirement product to retiring members.
Under the MyRetirement proposal, the framework is to be based on choice, rather than a default. As a result, retirees will have the option to select a MyRetirement product, stay with an account-based pension or withdraw a lump sum (or a combination of all three).
The point of making the offer of a MyRetirement product compulsory is to harmonise the retirement experiences of the large number of Australians at whom it will be directed. It would be an odd result if two neighbours, each of whom had been in MySuper for the last few decades of their working lives, got completely different outcomes in retirement simply because fund A chose to offer MyRetirement and fund B did not.
Governance is another issue that, while not canvassed in Treasury’s discussion paper, we noted was also worthy of the government’s consideration.
The debate on MyRetirement has so far been fixated on the product side of the equation. While this is a key part of better member outcomes, there perhaps needs to be an equal focus on the governance side. In other words, what will be asked of trustee directors when it comes to retirement income?
Trustee covenants are specific when it comes to accumulation investment strategy, insurance and risk management, but silent when it comes to retirement income. Yet there seems to be good industry support for requiring trustees to devise a separate investment strategy or framework for retired members.
One way to take this forward would be to codify an obligation for trustees to consider retirement-income factors, including regard for longevity and inflation risk, in the Superannuation Industry (Supervision) Act.
The trustee covenants could be amended to guide trustees through the formulation of a strategy for retired members, much in the way the insurance covenants now operate.
This could provide an additional lens through which these important reforms could be debated prior to implementation.
Jeremy Cooper was the author of the government’s 2010 Super System Review and is now the chairman for retirement income at Challenger – Australia’s largest supplier of annuities.