Operators in Australia's retirement incomes sector need to shift away from a 70/30 accumulation strategy if they are to provide opportunities to retirees and avoid additional pressure on the aged pension.
Ibbotson Associates chief executive Daniel Needham said the industry's accumulation strategy is not right for retirees, and the industry's biggest challenge will be increasing the number of products.
"Our products are framed in target return, they're framed in volatility," he said.
"They are not framed in income terms, they're not framed in terms that the financial planner can actually communicate to his client, and so I think the financial planner is already understanding the problem," he told delegates at yesterday's annual Wraps, Platforms and Masterfunds conference on the Sunshine Coast.
"I just think they [financial planners] actually try and convert it into a 70/30 balanced fund type framework based on the way those products communicate. So I think the industry itself, including us and other players, needs to convert what a traditional account-based pension [means] in income terms and what the probability is that it can meet those [objectives]," he said.
Needham said greater focus on providing advice put more emphasis on engagement tools, a key factor for enabling financial planners to continue to use the products.
"[It's] not the commercial relationships but the value that is added by those products, so I think platforms and administrators have a great ability to build tools that provide that type of information that make the job easy for a financial planner or adviser to compare products in income terms," he said.
He said another challenge is the pressure on the government to fund the aged pension and support health care in the future.
"I think the changes to accumulation have to happen now because it will get to the point where the system won't be able to support the number of retirees," he said.
Challenger retirement income chairman Jeremy Cooper said the industry should not rely on government to remedy longevity risk.
"The door is pretty well closed in terms of the government coming out and putting cash on its balance sheet or other risk-absorption techniques on the table," he said.
"We really can't look to the government to keep fixing these issues."
