Neither financial advice nor product innovation on their own will be sufficient to deliver the kind of retirement income solutions envisaged by the Retirement Income Covenant, but a combination of the two, delivered at scale, will achieve the confidence and assurance members need to retire well, the Professional Planner Licensee Summit has heard.

The Conexus Institute* executive director David Bell said the outcome the system was trying to deliver was an appropriate quality retirement income stream enabling members to “enter retirement feeling knowledgeable about what they can spend and feeling confident it’s going to last as well”.

Francis Rigby, group executive financial planning at Centrepoint Alliance, said advice was the channel best placed to deliver confidence and assurance, but just as product alone won’t solve the issue, advice can’t exist in some sort of vacuum, either.

“Most people don’t even know what retirement looks like, so the first bit is what does it actually look like, what does it mean?” Rigby said.

“Once you’ve established that, and you like the expression, you understand what cake you’re baking, it’s about partnering with the right ingredients to actually put that together.”

Rigby said helping members visualise retirement and then putting together the best solutions is “the power of an adviser, and it’s one of those things that you think about in terms of the responsibility of that”. 

“With great power becomes great responsibility, to quote a movie. It’s really important that we actually take the time to understand what’s out there, understand the different needs, but not go into conversations with a bias or a preconceived idea.”

Rachel White, head of financial adviser services at Vanguard Australia, said advisers are the only participants able to view members holistically. 

“The ecosystem is becoming more capable, but it’s so fragmented, and the ability to actually harness and use data effectively is so critical in retirement, but it’s such a challenge. 

“You’ve got super funds that are very much operating on a best-efforts basis. You’ve got self-directed investors that are very inconsistent in their ability to harness and use their data effectively, and therefore they’re getting very inconsistent experiences.

“Advisers are the only cohort that can see that full household financial picture, and from a retirement perspective, that really matters.” 

White said Vanguard research indicated a “full-information” strategy can lead to a more than 50 per cent improvement in retirement income results for members over a “partial-information” strategy, and the number rises further still where a client’s circumstances are more complex.

She said the so-called retirement advice gap is “not a demand problem, we know it’s a delivery problem”, and 90 per cent of Australians still do not receive advice. Cost remains the primary barrier.

Vanguard’s How Australia Retires research had found there are three things Australians consistently say they want help with when they retire: will I run out of money; how much can I spend; and am I set up correctly?

Meeting the covenant

Brighter Super CEO Kate Farrar said scaling up advice to meet the requirements of the RIC remains a significant challenge.

“For a super fund, the Retirement Income Covenant was actually a real change in the way that we had to think about things,” she said.

“Now we have to deliver on retirement outcomes… and that actually puts service right at the centre of the offering, whereas I think the product previously has been at the centre of the offering.

“If we really want to achieve our goal of having everybody retire with some sort of advice, whatever way you define advice, we have to get to scale, and there’s no way that you can deliver efficiently at scale super bespoke advice.”

Brighter Super has modularised its general and intrafund advice and sold its ongoing review book, referring more complex clients to Centrepoint. 

“It’s actually this ecosystem, and it’s working together that is going to be the best way of us delivering the great retirement outcomes,” Farrar said.

Bell said the fundamental, underlying issue for the superannuation system as a whole is that “they started on retirement too late”.

“They got such a big system with entrenched muscle memory of defaults doing a lot of the heavy lifting,” Bell said.

That kind of inertia can be difficult to change.

“The three-time reigning retirement fund of the year doesn’t have a lifetime income stream. It just shows you how far the industry’s got to go,” he said.

Farrar said criticism of funds over slow progress on lifetime income streams was overdone. 

“It’s a bit of a sport to kind of beat super funds up about not doing enough on lifetime income products,” she said, and existing account-based pensions were well run, cheap and transparent.

“There’s no single product that is a solution. It has to be a component or a menu of retirement products.”

White said product innovation alone had not solved the problem in the United States, and it won’t solely solve the problem in Australia either.

“We have a hybrid annuity, target date funds, but mainstream [wide]spread adoption is not happening,” she said, for reasons including cost, complexity and implementation friction. 

No silver bullets

Generation Life CEO Felipe Araujo said his firm made its lifetime annuity available only through advisers since 2022, in recognition that “it makes a huge difference for the product to be the enabler… not the sole solution here”.

“We are unashamedly an organisation that understands and sees the value in financial advice,” Araujo said. 

“No solution is a silver bullet. It is unfortunate for advisers the reality that they are going to have to do more work, they are going to have to do more research, they are going to have to be more abreast of what is currently available in the marketplace, because the reality is the system has evolved and it will continue to evolve.”

White called for advice reform as a key underpinning of better retirement income solutions.

“We need more accessible, affordable, pragmatic, principles-based advice, and it’s disappointing that that’s lower priority than it has been,” White said.

“Financial literacy levels in Australia are some of the lowest of any developed nation, and they’re actually going backwards. Engagement in super, as we know, is incredibly low, partly because we have such a great system.”

Farrar said the new class of adviser, as envisaged in Tranche 2 of the Delivering Better Financial Outcomes reforms, is not necessarily needed before funds could start delivering better solutions to members.

“The challenge is actually not getting the regs right, the challenge is working together properly.”

* The Conexus Institute is a not-for-profit think-tank philanthropically funded by Conexus Financial, publisher of Retirement Magazine.