A Retirement Income Covenant will be “essential” for retirees and should come into force as soon as possible to ensure retirees are properly equipped for retirement.
In an Allianz Retire Plus webinar, the firm said it was “time to do this now” after numerous delays to its introduction.
The Retirement Income Covenant, which was first proposed in 2018 and had been scheduled to come into force in July 2020, would require trustees to consider the needs and preferences of members and ensure retirees have greater choice in how they took superannuation benefits in retirement.
It was now set to come into force on 1 July 2022 to allow for continued consultation and legislative drafting to take place in light of delays caused by the COVID-19 pandemic.
Discussing the covenant, Sally Evans, director at Allianz Retire Plus, said: “The covenant is essential because our industry is so heavily weighted to the accumulation phase of retirement. A covenant will help us focus on the purpose of superannuation and what is the right way for individuals to smooth their income to last a lifetime”.
Dr Deborah Ralston, who sat on the Retirement Income Review, said she could foresee a much wider variety of products being available in the future following the covenant.
“I can see in a decade how superannuation funds will have a portfolio of products sitting on their platforms for retirees to help them through that phase of life.”
Meanwhile, there was an unwillingness among retirees to draw down on retirement capital as they were fearful of running out of money; some 61% of people surveyed by Allianz Retire Plus said they were feared running out of money more than death.
“People don't know how long they will live, how long they will work or what their health status will be. Those uncertainties play out in fear and a lack of confidence. That creates an enormous challenge for people to overcome,” said Evans.
Better investor education would be key to help people feeling this way such as giving retirees an indication of what their future income would be rather than thinking of it as a single lump sum.
Ralston added: “The result is members engage much more strongly with their super fund. In some cases, they start to make voluntary contributions and prepare themselves for retirement. They move from thinking about their retirement savings as a nest egg that provides dividends and interest, towards viewing it as capital to drawdown over retirement.
“Leading people through this process is challenging, but if we start early in the accumulation phase, and get people into that way of thinking, we can see real benefits.”