Superannuation fund trustees will need to develop a strategy on post-retirement products ahead of legislative change as the implications for the fund could be far-reaching, according to a new report by Towers Watson.
Trustees might need to find outsourcing partners to supply them with the right type of products for their member base, the global professional services firm said.
"Trustees will, of course, need to carefully consider whether and how any product options can be implemented by their funds," Towers Watson principal Nick Callil said.
"Some retirement products - in particular, those using an investment-driven approach - may be able to be operated directly by a fund without the involvement of an outsourcing partner, although clearly adding any new product to a fund's suite of offerings can require resources, which some funds may not currently have in place."
But for insurance products, such as lifetime annuities, it was likely some degree of outsourcing to an external provider would be involved, the report, "The Post Retirement Challenge: Strategies for Superannuation Fund Trustees", found.
"This may be because the fund lacks the operational infrastructure to make ongoing pension payments or if the nature of the product is such that a fund is not able to manufacture it," Callil said.
"True insurance products like annuities need capital and may require a life company licence, which means a fund offering these products must either have these resources internally or have access to them via a partnership arrangement."
Trustees will also need to give careful thought to the likely take-up of the product by its members, because the effort involved in the design and launch of a new retirement product will depend on the product receiving sufficient funds over a reasonable period.
Under the recommendations in the final Cooper review report, fund trustees must devise a separate investment strategy, which has regard to inflation and longevity risk, for post-retirement members in MySuper products.
"Trustees might need to start considering it right now, given that the government appears to have indicated support for the recommendation," Callil said.
"The obligation to have regard to longevity risk when devising investment strategy for post-retirement members is certainly a new one and raises plenty of issues for trustees to think about in developing their MySuper and choice strategy."
