Robo-adviser voices concerns about Govt’s CIPR proposals

While strongly supportive of the Government’s proposals overall, robo-adviser SuperEd has expressed some strong reservations about Treasury’s Retirement Income Covenant.

According to SuperEd chairman and co-founder Jeremy Duffield, there were two key questions the government failed to address in its proposals.

Firstly, Duffield asked if a member in a comprehensive income product for retirement (CIPR) would be exempt from minimum withdrawal requirements. While not explicitly stated in the paper, he said SuperEd believed this should be the case.

Secondly, Duffield asked what the trigger event for a CIPR offering would be, that is, either the member stating their intention to retire and meeting the conditions of release, or something else.

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Duffield said Treasury’s proposal recommended what SuperEd believed were “workable and sensible” default retirement income solutions under the rubric of CIPRs.

However, it was concerned that the narrow bands recommended by Treasury were unrealistic as they did not adequately appreciate the volatility of investment markets through changing economic regimes likely to be encountered in a retirement spanning 20 to 40 years.

"The requirement to have an expectation that the constant income stream will endure until age 105 also encourages conservative payout streams, which is not consistent with the intent to facilitate higher income drawdowns and to avoid legacy benefits," Duffield said.

"More generally, we are concerned about whether realistic expectations are being created for CIPRs, particularly in the current low interest rate/expected return environment, which makes providing high sustainable retirement incomes very challenging."