Funds seek to innovate retirement drawdown for members

Ensuring retirees draw down enough of their super and avoid fears of running out is crucial for the retirement income system, according to a panel of retirement experts.

Speaking at a Financial Services Council (FSC) event, the panel discussed innovation to help people access more of their retirement income rather than leaving it behind on death.

In 2023, an estimated $157 billion of assets will move from accumulation to pension phase for 275,000 individuals, according to the FSC, but there are ongoing concerns that people aren’t spending enough as they are concerned about running out of money.

The Retirement Income Covenant, introduced by APRA last July, requires trustees to define a strategy to help maximise members’ expected retirement income, manage risks to sustainability and stability of their expected retirement income, and have flexibility in accessing capital during retirement.

VIEW ALL

View all

Duncan Rawlinson, senior vice-president for global financial solutions at Reinsurance Group of America, discussed the trade-off between ‘carrot and stick’ when it came to funds and the  government’s encouragement of people to draw down more of their super. 

“We hear a lot about incentives but we don’t hear enough about the stick, I’m not an advocate for compulsion for annuities but I hear a lot about whether we will make sufficient inroad in the interest of retirees without some form of soft default as opposed to the individual active decision to purchase an annuity,” Rawlinson said.

“That is contentious but until we get enough volume through a mechanism, we will always have challenges with the decisions that retirees make around whether to focus on a nest egg. Is there a role for stick rather than always incentives?”

Ben Hillier, retirement solutions head at AMP, added that when it came to product innovations, funds shouldn’t get caught up in all jumping on the same trend.

“People don’t look at the MySuper dashboard, there is a big danger that we get excited about a standardised retirement dashboard that measures XYZ and then no one innovates in other ways so we all end up looking the same,” Hillier said.

“We have a diversity of solutions in the market and I wouldn’t say one is better or worse than another.

“What we’ve done at North is right for our audience of financial advisers but is far too complicated to put in front of direct consumers. It’s like comparing apples with lawnmowers and it’s folly to try to standardise a reporting tool.

“We already have an industry of ratings, consultants, journalists who can add their insights to help consumers with very difficult choice, cap that off with advice in all its forms and we are fairly well-served. Another dashboard is in danger of being the unwilling for the uninterested.”

Research by the FSC with NMG earlier this year found a more efficient drawdown system would result in higher retirement consumption of $397 billion from now until 2050 and reduce total super assets.

Optimising the drawdown phase would improve retirees’ retirement income by 15–20 per cent, benefiting individual Australians and help manage budgetary pressure from the retirement system. 

Around 100,000 more people would draw down on average an extra $10,000 in increased retirement income per individual every year.