Retirement is top of the agenda for both government and the regulators. We are seeing collaboration from industry to progress strategies to deliver better outcomes for Australians planning for retirement or in retirement, following the Retirement Income Covenant (RIC).

This sense of urgency has been amplified by the existing headwinds within the economy, which are challenging traditional retirement strategies and reinforcing the perfect storm of market volatility.

How do you solve a problem like longevity risk?

Retirees have long been left to the mercy of markets in managing their investments and the past twelve months have been challenging traditional retirement income strategies.

One solution to help address the unmet needs of Australians as they transition from saving to spending is to deliver a guaranteed income for life.

Most retirees, especially those working with a financial adviser, can estimate their income needs and implement strategies to manage inflation and market risk. These strategies generally involve a mix of superannuation, property and pension.

Currently, most Australians enter retirement with only modest super balances, but the average savings figure is on track to rise significantly in line with higher contribution rates. Treasury projections indicate the median super balance at retirement will grow from $125,000 in 2020-21 to $460,000 in 2060-61 (in today’s dollars) as the system matures.

A guaranteed lifetime income provides a regular known amount that a client can rely and plan on receiving for the rest of their life, regardless of the market drawdowns. It should provide the foundation from traditional asset allocation and retirement planning strategies can build on. A guaranteed income for life can anchor portfolios and deliver certainty, especially during times of market volatility. Retirees can then rely on the income they will receive without fear that money will decrease or drastically shift.

Next generation solutions

Much like how touchscreens revolutionised smartphones, making them more intuitive and user-friendly, next generation income solutions build on existing strategies and fit within existing ecosystems.

Integration must be at the core of all new retirement income solutions. As an industry we want to build on existing structures by becoming investment options within superfunds, Account Based Pensions and added to existing wealth platforms.

Although the problem we are trying to solve is complex, we can simplify this process by working within existing frameworks to deliver better solutions for retirees who need access to these new solutions urgently.

Greater flexibility, better state of mind

Having the option to access capital should circumstances change is a game-changer for retirees, as traditionally the choice has been either flexibility or stability rather than an AND. This is what the next generation of retirement solutions are offering, advisers and clients no longer will need to sacrifice certainty for flexibility or vice versa.

Research has shown that by allowing retirees to have greater control of finances within retirement, this can lead to better health outcomes as the stress of knowing your money is available relieves some of the pressure.

Another key ingredient to a happier retirement is planning earlier. The next-generation solutions are enabling advisers and their clients to plan for retirement before reaching the retirement income phase. These solutions can be incorporated into traditional portfolios in advance of retirement to allow advisers to start planning earlier with greater certainty.

There is no doubt the industry is progressing with a number of solutions already in the market, but there is still more to do. The ultimate victors will be retirees who will have increased access to genuine retirement income solutions that will deliver the certainty, flexibility and control they have enjoyed throughout their working life.

Adrian Stewart is managing director and CEO of Allianz Australia Life Insurance Limited. 

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