The Retirement Income Covenant lacked consideration to the majority of current retirees whose concern was about having insufficient retirement savings, according to an association.
The Australian Institute of Superannuation Trustees (AIST) said in its response to the covenant paper that greater consideration was needed on the majority of Australians who would be retiring on a full or part pension over the next couple of decades and would not be passing on large super bequests.
“It would be fundamentally wrong to force retirees with lower account balances and possibly shorter longevity into products where they would effectively subsidise the retirement of those with higher account balances and higher than average life expectancy. Therefore, AIST is pleased that the position paper suggests a more flexible approach to super fund retirement income strategies,” it said.
“The cost or ‘risk transfer’ of a product solution addressing longevity risk means is one reason why annuity-type products are generally higher cost than account-based pensions. This may be acceptable for members for whom this is appropriate but needs to be understood in the landscape of possible solutions/strategies. It also makes them unsuitable for low balance holders in many instances.”
AIST also noted the importance of financial advice in funds’ retirement income strategies.
“The move away from a product-based approach does, however, move the focus to advice and guidance, and the need for high level principles for both the retirement income system and adoption of those principles as a strategy at fund level,” it said.
“While we agree that the covenant is a key stage in the Government’s retirement income framework, it is not the only stage, and we submit that greater consideration must be given to other parts of the framework.”
AIST said it recommended that the introduction of a covenant be progressed in tandem with (but not delayed by):
- A legislated objective of the retirement income system, including the role of superannuation; and
- Consideration of the full breadth of regulatory and practical issues impacting on the quality and affordability of financial advice, particularly that related to advice for retirement.