The design and creation of retirement solutions between now and when the government’s slated Retirement Income Covenant comes into effect will have a lot to do with whether the business case for these products stack up, superannuation fund executives have highlighted.
“As the fund, as the trustee, you don’t do something because it sounds like a sexy thing to do or because you just want to have a retirement product,” Kevin O’Sullivan, UniSuper’s outgoing CEO commented during Investment Magazine’s recent Retirement Conference.
“The last thing I am going to want is for anyone in this room to come up with a product because they can and it costs them $50 million and 200 people buy it, it just doesn’t make sense. The important thing is the business case make sense because its member money you are using to do it,” O’Sullivan said to a closed room with government representatives, agencies and leaders of the industry’s 13 largest funds in Canberra in mid-June.
O’Sullivan noted a few years ago that UniSuper had started product development for a non-guaranteed lifetime product called ‘FlexiChoice’ which it chose to put on hold partly because of uncertainty of legislation.
“We questioned whether it was worth spending millions of dollars on product development and still be uncertain whether it would fit within the CIPRs framework,” O’Sullivan said.
“With our actuarial and product heritage we are ready to go when we think we should and we are interested in lots of products solving for retirement, including those in Canada and in Europe,” he said.
O’Sullivan’s remarks followed case studies delivered by QSuper, Colonial First State and Hostplus; representatives from each of these three funds outlined their respective retirement income solution approaches as part of the formal part of the conference agenda on the day. The conference took on a United Nations-style format in which CEOs, CIOs chairs and heads of strategy and retirement divisions along with a handful of service providers, regulators and policy makers spent the day discussing their respective approaches to retirement income products and strategies.
QSuper is the only fund to have created a retirement product in advance of guidance from the government in advance of the RIC – the soon to be merged QSuper launched its Lifetime Pension product at the end of March.
Brnic Van Wyk, head of asset/liability management at QSuper told the receptive Retirement Conference audience that the new Qsuper product was modelled off a Canadian product with a base case of 500 people.
“You need to build a product of this nature for the future, not necessarily for what’s in front of you at the moment,” Van Wyk said. He added that a business case was brought to the QSuper board some 25 years ago for its Retirement Income Account which was based on a business case for 100 members.
“You can tell from the conversation today there are going to be a lot of very different ways funds come at this retirement income challenge,” David Bell, executive director at The Conexus Institute and co-host of the discussion, said.
Overall funds raised challenges relating to justifying the spend of member funds on product development and a lack of understanding of member behaviours and preferences as some of the main impediments to creating adequate retirement solutions in time for the Retirement Income Covenant.
“Innovation is a competitive strength in Australia and the Morrison government wants to see the proverbial thousand flowers bloom,” Minister Jane Hume said during a speech to open the conference.
Under the RIC super funds will be required to develop a retirement strategy for members and provide guidance to help them make the most of their accumulated savings over the course of their retirement, Hume summarised during her address.
Government will continue to consult with industry for the next few months before legislation is drafted, Hume said.
“…[W]hile clarity for the industry is crucial , rigid frameworks stifle innovation and breed homogeneity and that’s not where we want to land. Rather the key point of the covenant will be to spur further action across the segment,” she said.