More retirement income products coming

By Penny Pryor

This year could be an inflection point for innovation in retirement income products, according to KPMG partner, actuarial, financial risk and analytics, superannuation, Melinda Howes.

"We've seen incredible light and heat around this part of the market in product development over the last two years," Howes says.

She also points out that over the last three decades there have been many good retirement income products come to market, particularly ones that focus on longevity protection, but it has been very difficult for these products to get traction.

"We've been asking ourselves for a long time. Why is this the case? The only markets in the world where these sorts of products have got traction is where there's some sort of compulsion or regulatory impost or push to support them," she says.

With the retirement income covenant (RIC) now in place, Australia has that regulatory nudge and combined with increasing demand from members for surety of income throughout their retirement journey, these two factors are expected to see more products come to market this year.

Account-based pensions have been the stalwart of superannuation funds' retirement offerings for decades, but they don't guarantee income across the retiree's lifecycle and many super funds are looking at additional products that can be used in conjunction with an account-based pension.

"The work we've done in KPMG actuaries to test retirement income strategy shows that for most cohorts of members, having a proportion of the cohort's money in one of these longevity products, alongside an account-based pension - so it might be 30 per cent longevity products, 70 per cent account-based pension - those kinds of blends are mathematically optimal for most cohorts of members," Howes says.

Technological advances and changes within insurance are also making it easier for super funds to partner with providers in order to provide these longevity solutions in order to keep the members' balances within the fund.

"What super funds want is the ability to run the money because that's their expertise [and] that's how they get scale. What we're seeing now is more flexibility," Howes says.

"These international big insurers, and some domestic insurers, are coming in, in more of a partnership arrangement where they can stand behind and just offer insurance and the super fund runs the money is one model. Or they can actually offer a structure so the money's still within the super fund but they're getting the expertise of the insurers who are doing these in big pools overseas."

This will be a prime area of focus for superannuation funds. In the battle to retain members they will not want to lose any to more competitive products in the retail sector, which has happened in the past as retirees looking for longevity assurance seek an annuity style product on a platform.

"Losing clients at the point of retirement just when they're probably at their highest level of balances is not it's not a great strategy for superfunds," Howes says.