We are at an inflection point for retirement investing in this country.
The grey tsunami is coming, with millions of Australians set to transition from the wealth accumulation to retirement phase of superannuation over the coming two decades.
The past two years have been difficult amid the uncertainty of the pandemic and with inflationary pressures rising following the latest ABS data its only set to get tougher for Australians in retirement or looking to retire.
However, it has crystallised Australia’s retirement conundrum needs action.
It’s time to acknowledge the goals for retirement are different
Transitioning to retirement the focus shifts from performance to generating a reliable, stable income that can be used to finance a comfortable lifestyle.
We need to expand the focus from achieving standardised pre-retirement target figures to giving retirees the confidence that it’s going to last.
According to the Association of Superannuation Funds of Australia (ASFA), a couple will need $640,000 in super savings at retirement, while singles need $545,000, to achieve a “comfortable” lifestyle. The targets assume retirees own their home outright and are not paying rent or a mortgage.
Allianz Retire+ research conducted in the second half of 2021 unsurprisingly found that three in four retirees are not confident about how long their money will last in retirement. Leading retirees to ‘under spend’ for fear of running out, also referred to as longevity risk.
The research also found a third of Australians in retirement feared the threat of inflation driving down the purchasing power of their savings – a fear amplified over the past six months.
Which is why we need to start measuring success in terms of creating certainty. Certainty in retirement can be defined as having confidence in receiving an income for the rest of your life, or a guaranteed income. This ensures ‘lifestyle protection,’ removing the fear of spending money once in retirement.
Life companies to lead the charge
Capital protection and certainty of income are the two key drivers for retirement portfolio management.
In the last 30 years since superannuation was established in 1992 the financial services industry has been led by investment managers focused on performance in accumulation. The next thirty years will be directed by life companies providing guaranteed lifetime income solutions that deliver income certainty and complement the role of the investment manager.
Life companies have a significant role to play in solving the retirement problem. Unlike investment managers, life companies can deliver certainty to retirees because they can deliver a guaranteed lifetime income. They have the scale and capital required to deliver a solution that a retiree might rely on for 30-40 years. Empowering Australians to live comfortably and removing the fear of ‘outliving their wealth.’
As one of the only dedicated retirement specialists in the Australian market, we support the call to action for life companies to take a more active role in the retirement sector from APRA deputy chair Helen Rowell last year. We also support the need for further development and innovation in the sector.
Flexibility is crucial for next generation retirement products
The economic landscape is shifting, and we need dedicated products to address the individual needs of retirees by creating flexible solutions that remove the current barriers that exist.
The retirement income covenant has accelerated this shift as we are seeing trustees and superfunds significantly increase their focus on the retirement solutions offered to members.
However there are limited suitable choices in market.
We along with others are developing the next generation of retirement products that offer Australians a flexible way to access funds without friction.
Life companies bring a dedicated technology platform specifically to administer multi-decade products. These platforms must be able to integrate with existing infrastructure to enable advisers and super funds to access these solutions within retirees account-based pension.
Following the retirement income covenant the super industry is taking real action to not only articulate the covenant, but also partner with life companies to deliver lifetime income guaranteed solutions.
There is a huge market opportunity for a range of industry partners to work together to provide better outcomes for retirees. The work has begun, but there is still more to do, the time is now.