The role of death benefits in a post RIC world

By Penny Pryor

Ever since 1 July this year, as a requirement of the Retirement Income Covenant (RIC), superannuation fund trustees have been required to consider how to best 'maximise' retirement income for members.

In a new paper from Optimum Pensions, managing director David Orford, general manager Peter Rowe and head of innovation Jim Hennington, posit that given that account-based pensions (ABPs) ultimately pay as much as 38 per cent of their assets as death benefits (according to the Retirement Income Review), perhaps it's time to reconsider how, or if, death benefits can be repurposed to benefit the member while they are still alive.

"Products that can capture this 'leakage' can deliver even higher retirement incomes to those that need them. Each of us has only one life - so each retiree might as well enjoy what is left of their life (their children should insist on this). Regular income helps maintain health and increase lifestyle and thus happiness," the paper - entitled Can superior Investment Performance beat lifetime annuity/pension income? asks.

Optimum Pensions has a Lifetime Pension product that aims to do this, but the paper points out that product design can be used to increase the total retirement income delivered by any level of ABP investment performance.

"There seems to be a growing consensus in Australia about not paying death benefits from superannuation in old age (e.g. after age 80). Often retirees have other assets to leave as an inheritance, including the home and other personal assets," the paper says.

Paying death benefits to non-members when the retired member is over the age of 80 does not appear to be in members best interests - unless they are survived by a spouse. And perhaps members should be allowed to make the choice themselves of a retirement product that stops paying death benefits after age 80 - and therefore allows more to be funneled back into income while they are alive - or one that pays death benefits indefinitely.