A joint review from the Australian prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) identified a “lack of urgency” among superannuation trustees in actioning the retirement income covenant (RIC).
The RIC requires trustees to develop a retirement income strategy designed to improve long-term outcomes for members.
With approximately 4.2 million Australians heading to retirement age, Patrick Clarke, general manager of retirement solutions at Generation Life, called for a “collective awakening” to this reality across the financial services industry.
“As a nation, we’ve been very much focused on saving for retirement, there’s no doubt about it, and our system is one of the best in the world,” he said during his appearance on the Relative Return podcast.
“But I think [the] evidence that we have before us about how people have used their retirement savings up until now shows us that they’re not using those savings effectively.
“I heard a great phrase the other day that Australians are regarded as the richest in the graveyard. People are passing [away] with large parts of their superannuation intact, which means that they haven’t actually spent their retirement savings — people are getting to age 80 and they’ve got 80 per cent of their retirement savings still intact.”
Mr Clarke, a 36-year veteran of the wealth industry, said while superannuation funds have not devoted resources to retirement income planning in the past, they are well positioned to offer solutions to the market.
“I think it probably didn’t occur to super funds that it was their role, but for my way of thinking, it’s a natural role for a super fund,” he said.
“I mean, if you’re a super fund member and you’ve been relying upon the super fund to help you accumulate for retirement, then I think it’s only natural that super fund members would look towards their super fund to help them use those savings in an effective way.
“…I don’t think anyone should be pointing a finger of blame or anything. I think it’s actually a collective awakening.”
To address this “gap” in the system, Mr Clarke calls for greater competition in the retirement solutions market and for greater access to quality advice.
Mr Clarke said he expects the market to expand as demand intensifies, adding superannuation funds would help in making longevity products more accessible to retirees.
“They’ll either put solutions on an approved product list and have their advisors work on that or they’ll start to develop their own solutions,” he said.
The Generation Life GM sought to dispel fears about retirement income solutions, which he said had made many potential providers “gun-shy”.
“I think it’s probably not a surprise that people are a little bit cautious now,” he said.
He cited a number of “myths”, which he said had slowed the development of the retirement solutions space, including fears that the benefits of retirement income solutions would not pass on to future beneficiaries.
“The first [myth] is that if you put money into a lifetime annuity and you pass away early, your beneficiaries get nothing back. That just doesn’t happen anymore,” he said.
“There is no lifetime solution out there that doesn’t return the purchase price back in the form of cumulative income and a death benefit.”
He also downplayed concerns about the perceived risks of opting into longevity offerings, stressing the industry is “heavily regulated” and has no history of defaulting on investor funds in Australia.
“That could always happen, but I’d suggest if it does happen, the world’s probably been hit by a meteor and your annual income payment is probably the last thing on your mind,” Mr Clarke said.
“The trade-off is, of course, that there’s volatility in the income, but I always think that more income is better than stable income,” he added.
To hear more from Patrick Clarke, tune in to this episode of the Relative Return podcast.
