Creating the optimal retirement solution for a client is a complex juggling act of trading off goals and objectives and matching them to the implementation options, or products, available.
A resounding message from the 2015 Post Retirement Conference, held in March by Conexus Financial, the publisher of Professional Planner, is that there is still no single silver-bullet product solution to this task. A financial planner’s job, for the foreseeable future at least, will remain one of striving for the best fit by mixing and matching products to individual clients’ needs – taking into account their risk tolerance, income needs, and longevity.
Nicolette Rubinsztein, general manager of retirement and advocacy for Colonial First State (pictured), says modelling carried out by CFS and EY has shown that “combining products in retirement can provide a better outcome for customers that using
a single product”.
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The line-up of products at the adviser’s disposal currently includes account-based pensions, lifetime annuities and variable annuities; and Rubinsztein says she is confident that the necessary legislative and taxation changes can be made to allow the launch of deferred annuities, which will extend further the range of options available to advisers and their clients.
CFS worked with EY to analyse the retirement product market to determine how the various product options stack up, how advisers can begin to assess the trade-offs they must make in meeting clients’ goals, and how to mix and match existing products to achieve those goals.
“It all starts with the client’s needs,” says Steve Nagle, a partner with EY.
“Advisers should consider the outcomes of various product combinations against a wide range of economic scenarios and individual circumstances, including longevity, health or sickness and capital access requirements.
“The use of good financial models can help to make this process manageable. At the same time, advisers need to be able to communicate the various options to their client, taking into account alternative scenarios and the required outcomes.”
Mix and match not right for all
An approach of combining products isn’t necessarily right for all individuals.
“If you’ve got $1 million and you want an income of $50,000 per annum, a straight account-based pension [means] you can live off the investment earnings of that, effectively, and preserve your capital,” Rubinsztein says.
“So it’s more [suited to] people that are going to have to eat into their capital to sustain their income in retirement. That is really, very broadly speaking, this $200,000 to $1 million range of account balances.
“The one that we used in the example [at the Post Retirement Conference] is someone who has $379,000 and is aiming for a level of income of $41,000, which is the ASFA[-defined] “comfortable” level of retirement. For that kind of person…by combining products you can give them a better outcome in retirement.”
Retirement really is different
A key theme that emerged from the PRC was that retirement is distinctively different from the accumulation phase that precedes, and demands different investment solutions.
Paul Rogan, chief executive of product and distribution for Challenger, told the conference that “‘retirement is different’ is becoming more of a mantra for the entire industry”.
He said that at its simplest, an individual’s accumulation goal is to “seek the highest return to maximise wealth”, whereas the same individual’s retirement goal is to “sustain a living standard while spending down assets over an unknown length of time”.
