The move, which has already sparked significant conversation, promises to reshape how the superannuation and financial services industries can help retirees make the most of their savings.
Namely, as revealed by InvestorDaily on Thursday, a confidential document has been circulated among super funds and industry bodies, outlining a set of voluntary best practice principles designed to ensure funds can keep pace with rising withdrawals.
The draft principles focus on deepening funds’ understanding of members’ needs, offering modern products and providing clearer information, with a key point of contention being the push for longevity protection in retirement income solutions.
Essentially, super funds are being encouraged to embed longevity protection into retirement income plans for members with average balances over $200,000, with tailored drawdown pathways to help maximise their account-based pension component.
While the superannuation sector appears hesitant, with both the Super Members Council and the Association of Superannuation Funds of Australia opposing a government mandate on annuities, Patrick Clarke, general manager of retirement solutions at Generation Life, welcomed the principles.
“The draft principles will stimulate much-needed debate about how the superannuation and wider financial services industry can help Australians more effectively use their retirement savings to live the best possible life in retirement,” Clarke said in a written statement.
Highlighting the voluntary nature of the principles, he emphasised that they recognise the diverse needs and circumstances of retirees.
“To optimise retirement outcomes for most Australians, an account-based pension can’t do all the work,” Clarke said.
“Lifetime income streams, when combined with account-based pensions, can deliver quantitative benefits like maximising retirement income, and potentially earlier and/or greater age pension,” he said, adding that a regular income stream for life offers peace of mind and the freedom to spend with confidence.
Clarke also noted that, unlike the accumulation phase, the decumulation phase is more complex and requires solutions that cater to retirees’ specific needs. Super funds, he said, should offer the tools to help members make the right allocation between account-based pensions and lifetime income solutions.
“Generation Life agrees that member choice should be preserved but also agrees that education on retirement income should be provided well before retirement,” he said.
Challenger CEO Nick Hamilton however emphasised that while improving outcomes for retirees is crucial, the annuity provider does not support a state-led solution.
“At a time when productivity is stagnating and 700 Australians are retiring every day, to deliver the right outcome for the economy and retirement, we must have the right regulatory capital settings and accessible affordable advice. The super system is world-class, but we risk failing retirees if we don’t focus on helping them draw down their savings with confidence,” Hamilton told InvestorDaily in a written statement.
“Rather than state-led solutions, the focus should be on enabling competition and innovation, unlocking capital for investment, and ensuring retirees have access to a broad range of lifetime income solutions. That’s how we provide more Australians with financial security in retirement.”
On Thursday, in a chat to InvestorDaily on the sidelines of the SMSF Association National Conference, Luke Howarth, the shadow assistant treasurer, raised concerns that Labor’s proposal could strip Australians of their choice in retirement planning.
“As far as I’m concerned, when it comes to superannuation and retirement age, it’s all about choice. The individual choice of Australians, they should be able to take their super as one lump sum if they want and spend it how they wish,” Howarth said.
“Treasury officials, super funds and government shouldn’t legislate to lock in anything that doesn’t involve Australians having a choice in how they spend their own money.”
An extension of RIC
While the advice community is still grappling with the details of the secret document, Phil Anderson from the Financial Advice Association Australia told InvestorDaily that it seems to be an extension of the Retirement Income Covenant (RIC).
“The Retirement Income Covenant was based around super funds needing to have strategies for retirement and there’s [an area] about identifying particular cohorts, and offering solutions for them based upon that cohort. We would always argue that that works in the default world, it gives a solution for people, but it’s absolutely secondary to getting financial advice which is tailored to the individual’s personal circumstances,” Anderson said.
“I think this whole Retirement Income Covenant is about providing some sort of secondary-type solution where people may not otherwise access advice, and it works in the default context. What’s being proposed, what is being spoken about, potentially goes further than that, but at this stage, we don’t have any visibility of it.”
Anderson’s interpretation that the principles build on the RIC, seems to be correct, with the document itself alluding to it being an extension of the existing obligations set out in the covenant.
“The overall objective of the principles is to provide guidance on voluntary best practice beyond those requirements set out in the covenant and broader trustee obligations,” the document reads.
The Labor government has yet to acknowledge the existence of this document.
