When the Superannuation Guarantee was introduced, Australia seemed to be on the path to a retirement crisis. A falling birth rate and ageing population pointed to a future where an increasing number of older Australians could be reliant on the government purse. Today, many Australians have more retirement savings per capita than any other country. While Australia has the world’s 54th largest population, it has the fourth largest retirement system1.
While our retirement system is sizable – and projected to grow from 116% of Australia’s GDP during 2022-23 to approximately 218% of GDP by 2062-63 – it is not classed as an A grade system because there is no requirement that a portion of super savings be taken as an income stream2 .
Until recently, the investment strategies and products that have enabled the accumulation of assets for retirement have not provided the financial certainty Australians should expect for their retirement years. Once retirement income replaces work income, Australians should not have to worry about inflation, market volatility or living a long life. They certainly should not have to fear running out of money or having to solely rely on the Age Pension.
The cost of inaction
The Retirement Income Covenant has sharpened the focus on retirement income products. It requires trustees to develop a retirement income strategy for super fund members and identifies the goals of retirement investing as:
- To maximise retirement income
- To manage the risks to the sustainability of that income
- To have some flexible access to savings during retirement.
To date, it has highlighted both the deficiencies in existing products and the large gap that exists between product quality in the accumulation and decumulation phases.
Retirement planning must encompass more than the accumulation of assets. Your clients deserve the certainty that those assets will be deployed to meet their changing needs throughout retirement. Next generation products that provide a guaranteed lifetime income should form a key part of the decumulation product mix. Financial advisers are best positioned to guide their clients through the options available. Not doing so can mean you miss out on:
1. Improved client satisfaction:
Offering comprehensive retirement income planning that includes guaranteed lifetime income products helps demonstrate your focus on the wellbeing of your clients. This proactive approach fosters trust and loyalty, important to maintain long-term client relationships with this generation and the next.
2. Differentiation in a competitive marketplace:
Becoming a specialist in guaranteed lifetime income solutions and actively promoting them to your clients can help you to position yourself as a specialist in this growth segment and give you an edge in a competitive market.
Until recently, the range of super-based retirement income strategies has been limited. Most options generally don’t fully address the financial fears held by retirees and many are perceived as rigid and difficult to execute. This can drive retirees to adopt sub-optimal self-insurance actions such as extreme frugality to eke out their savings.
Rather than adopting such drastic measures, retirees need access to products that:
- Provide protection against market volatility while still offering capital growth
- Allow retirees access to their capital, which can be converted into a guaranteed lifetime income stream when they are ready to draw an income.
This will ensure they can look forward with confidence and live the retirement lifestyle they’d planned. You can distinguish yourself from your competitors by taking the initiative and positioning yourself as a retirement income specialist. By providing access to products that minimise or eliminate common risk factors – such as longevity and market risk – you can enhance client outcomes.
Reframing the guaranteed lifetime income conversation
Being an early adopter of guaranteed lifetime income products requires commitment, ongoing education and a willingness to embrace change. It’s important to be well-equipped to overcome misconceptions, manage reluctance and promote better understanding around the topic.
Our latest whitepaper ‘Retirement Income Products Reframed’ aims to provide actionable strategies for talking to your clients about guaranteed lifetime income. It will help you reframe common misconceptions, reinforce the urgency of income solutions and promote the value of a guaranteed income stream in retirement.
Retirement Income Products Reframed (allianzretireplus.com.au)