1 July significant inflection point for super funds

The retirement income covenant for superannuation funds - which requires them to compile and publicise a retirement income strategy for all members - might have gone live relatively quietly on 1 July 2022 but will be remembered as quite a significant "inflection point", according to Allianz Retire+ head of institutional solutions, Fintan Thornton.

"I think we will look back in five- or 10-years' time and remember this moment with probably more significance than many people do at this exact point in time," he told Industry Moves.

A seismic shift

"It's one of those sorts of things that over time we look back and go, well, that was actually the start of something amazing and different in our industry. Analogous in a sense to the introduction of superannuation guarantee in and of itself back in 1992. You know, it was the start of something seismic."

The superannuation guarantee celebrates its thirtieth anniversary this year and the emphasis for most of the superannuation industry over the past thirty years has been wealth accumulation - how can funds get a better return for members and how can funds help members accumulate enough wealth to secure a satisfactory retirement.

"Historically, some super funds did not have any retirement products and some of them only in the relatively recent past have introduced retirement products," Thornton says.

"As their membership ages, as is happening in society more generally, trustees and super funds are looking to develop alternative products, rather than just an account-based pension with a moderate number of investment options that has historically been the only solution."

The Corporate Collective Investment Vehicle Framework And Other Measures Bill 2021 and the Retirement Income Covenant that forms part of that bill has, as was its intent, prompted funds to consider different retirement income options.

Potential solutions

A great fear of retirees is that they may run out of money before they die, so many funds are considering products, or combinations of products, that can provide them with surety of income throughout their retirement.

One way of doing this is via an annuity style product sitting next to an existing allocated pension. The annuity product could also be purchased for use at a certain age, when income from the allocated pension may be projected to run out, given certain market conditions.

But Allianz Retire+ has been talking to superannuation funds about retirement income products and has another solution.

"We think the way to help the super funds evolve their offerings is to embed a life-based solution inside of the account-based pension. So rather than trying to replace a product with another product, let's try and evolve the existing product that's there," Thornton says.

That would mean that members would have a single PDS, a single engagement process and one single form to fill out, instead of multiple documents for multiple options. Thornton says that this proposed option has also been well received in initial discussions he has had with funds.

"We have the ability to develop solutions that sit neatly inside super funds and basically deliver exactly what you'd expect from us, which is a guaranteed income for life within the construct of an existing super fund."

Allianz Retire+ is planning on bringing such a solution to market in the second half of this year.