The federal government is sounding out the possibility of introducing a MySuper-styled default product requirement, comparison tool and performance test package for super funds in the retirement phase, in a bid to ramp up the industry’s offerings for retirees.
In a 31-page discussion paper released on Monday, the Treasury outlined potential new policies in three areas of focus: helping members navigate retirement income, supporting funds to deliver better strategies, and making lifetime income product more accessible.
“We want to ensure super delivers on its foundational promise of providing a dignified retirement for more Australians,” said Treasurer Jim Chalmers and Minister for Financial Services Stephen Jones in a joint media statement.
One of them was a standardised “first offer” retirement product that will balance a set of desirable features, including around flexibility, risk management and income. It could include longevity protection measures such as deferred guaranteed income stream, or forward-planned income stream according to members’ preferences.
While acknowledging the default product won’t be suitable for all retirees, the paper said it should provide a solution for less engaged members while retaining choice for them.
Research from SMSF administration service provider Class presented in September showed roughly half of APRA-regulated fund members aren’t taking advantage of tax-exempt income streams in retirement, showing the need for options to help disengaged fund members move to a more appropriate retirement vehicle.
Meanwhile, a retirement product equivalent for the Your Future Your Super (YFYS) package is officially on the government’s agenda. It followed reported comments from APRA’s chair John Lonsdale during an industry roundtable earlier this year that with the YFYS’ success in the accumulation phase, a similar arrangement for retirement won’t be “that big a step”.
The paper listed the YourSuper comparison tool and the performance test as two effective ways in the accumulation phase to rule out underperforming products and funds and would help members make more informed choices.
However, the paper iterated that if both were to be established in retirement, the industry needs to establish better disclosure practices (including universal comparison metrics) and “careful assessment of the unique challenges present in the retirement phase”, such as liquidity and longevity risks.
If established, a standardised product disclosure framework will require funds to publish basic information on their retirement products (such as expected income and risk management) and performance elements (such as fees and investment performance).
Funds will also need to elaborate on how they fulfill their covenant obligations, but will have flexibility around ways of implementation.
“Appropriate performance metrics will differ from accumulation phase performance assessment,” the paper said.
“The complexity and individuality of retirement income approaches may make comparisons and assessments difficult, including in relation to retirement income strategies where there are a range of good approaches funds could be taking.”
The number of retirees with a super account is set to double in the next decade with an estimated 2.5 million Australians retiring. However, the paper indicated that there’s confusion around retirement products, such as the minimum drawdown rate, which was often mistaken as a recommendation or default and could be revised to “better reflects retirees’ expenditure needs”.
Funds are also urged to improve guidance, education and communication for members, such as by “nudging” their members to consider their arrangements before they reach the retirement age or providing guidance through a service similar to the UK’s PensionWise.
The consultation paper is open for submissions until 9 February 2024.
Basing your decisions on past performance tables has always been a ridiculous way to try and solve an advice problem. There is no lack of products or offerings. There is a lack of professional financial advice. Industry Funds are looking for ways to provide no advice and hold onto their clients funds. That’s all they are interested in. The government and the treasurer need to stop pandering to the union backed funds, and start to address the actual needs of Australians retirement funds. that is actual comprehensive retirement advice, not pandering to the needs of the product providers, but think about the complex needs of all Australians transitioning to retirement.
It needs to include ‘personalised advice’ around super, non-super investments, pensions, centrelink, property downsizing, estate planning, aged care, & budgeting.
Vertically integrated Industry Funds, the internet, & AI cannot provide all these services for individuals. There is also a huge conflict of interest that needs to be dealt with when it comes to these vertically integrated funds. Do you think that Industry Funds would ever recommend a product outside of their own, or a SMSF?? The treasurer needs to be very mindful of these issues when making any changes or recomendations or suffer a repeat of the vertically integrated Banks and another Royal Commission. Independent advisers can provide a solution here. The solution won’t be found within the product providers. They are barking up the wrong tree trying to rely on vertically integrated product providers for the solution to Retirement Advice.