The RIC requires modular retirement products

When implementing the Retirement Income Covenant (RIC), superannuation trustees should source modular retirement products that adapt to the needs of the different retirement cohorts.

Speaking at the Post Retirement Australia conference, Fidelity head of client solutions and retirement, Richard Dinham, explained how a recent Fidelity study provided insight that would help trustees implement the Retirement Income Covenant.

The Fidelity commissioned quantitative study surveyed about 1,500 randomly selected Australians over the age of 50, splitting the study into four cohorts across the pre and post retirement spectrum.

Some of the insights raised by Dinham were that three-in-five retirees felt they underestimated the emotions involved in retirement while half of respondents felt a loss of control in retirement.

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Dinham said the Retirement Income Covenant (RIC) would play a role in improving these statistics.

He said the RIC would mean trustees would need to balance competing objectives for members such as providing access to capital, maximising their level of income, managing risk and seeking stable and sustainable income. The objectives would be backdropped by key investment risks such as inflation, longevity risk and sequencing risk.

Dinham said the RIC would create new demand for new kinds of products, suggesting product designers incorporate “modular building blocks” – features that would be tailored to each cohort’s needs and varying levels of risk.

Dinham said simple retirement solutions where members could flexibly change and adapt their investments would be important things to address when implementing the RIC. 

“It's absolutely crucial that to create and maintain engaged retirees they need to outwardly understand the workings of what they’re invested in,” Dinham said.

Dinham said the RIC would put a new focus on outcomes, “which is quite different to the accumulation environment which is very much focused on performance”.

“When you flip the perspective and look at this from the consumer point of view, it's clear that retirement success is not just about a retirement balance. It’s a complex emotional journey and it’s not just about the money,” Dinham said.