Treasury’s Retirement Income Covenant gives a competitive advantage for trustees looking to address member acquisition and retention challenges, following the introduction of stapling as part of the Your Future, Your Super (YFYS) reform, according to the Retirement and Ageing Advisory Panel.
Additionally, the panel including experts from the superannuation, aged care, and retirement industry, said that impending legislation for trustees’ to deliver retirement income strategies by 1 July, 2022, became an important catalyst to reconsider the retirement roadmap for what represented such a valuable member segment for trustees.
One of the panellists, super expert, David Coogan, said that there was a big gap in the market is the development of income stream options that might complement the account-based pension and mitigate longevity risk and members would be looking to supplement their allocated pension, while guaranteeing they could address their risk of running out of money.
At the same time, the implications of stapling presented an additional incentive. The group said that while one of the most significant sources of loss of members was pre-retirement and getting out of the gate with a competitive retirement offer would form a part of the retention solution, however a central component should be sustainability, and access to scale is a critical factor in many of these solutions.
The panel also agreed that that the labelling and subsequent comparison of innovative product structures presented a significant obligation for the industry and could help define what a successful covenant implementation may look like.
At the same time, careful consideration was required regarding consumer protection and what warranted the term “income for life” or constituted a guarantee or what was a risk borne by individual or pool of members, the panel said.
“Framing and language will be important in describing what customers are going to be delivered, and which structures can technically guarantee outcomes or “income for life” for their members,” Allianz Retire Plus, head of institutional solutions, Fintan Thornton, said.
“There’s a quantifiable difference in an account-based pension, where the member bears all the risk or in pooling structures sharing the risk amongst a cohort of members; versus a guarantee from a life company. Members will need guidance in understanding the trade-offs and associated risks a structure may present in not meeting its stated outcome.”
Thornton also anticipated that the industry would seek further guidance from Treasury regarding Trustees aiding members to determine the suitability of retirement income strategies.
“Trustees will understandably be seeking some protection in the provision of what constitutes information, guided choice, through to advice, likely via a safe harbour, to help them confidently guide members to assess suitability,” he said.
“But we should not see the provision of advice in this context as a roadblock to a successful Covenant.”
