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What MyRetirement means for advisers

5 min read


10 Nov, 2017

The Federal Government has recognised that Australians face complex decisions at retirement. The Government has also recognised limited availability and take-up of products that can help retirees efficiently manage the risks they face in retirement, in particular longevity risk.

The Government has agreed to support the development of Comprehensive Income Products for Retirement (CIPR), now known as MyRetirement to address the challenges that many Australians face in retirement as outlined in the table below.

Framework for Comprehensive Income Products in Retirement

Source: Government discussion paper, ‘Development of the framework for Comprehensive Income Products for Retirement.’

The Government is currently consulting with industry. It is expected that legislation to support these products will not begin any earlier than mid-2018.

MyRetirement in a nutshell

MyRetirement will:

  • be a mass-customised composite retirement income product designed by super fund trustees to be in the best interests of the majority of members;
  • provide a balance of income, risk management and flexibility; and
  • provide an “anchor” to guide a person’s retirement income decision.

A “mass-customised” retirement income product means one designed in the best interests of the majority of members. So, while it might suit a lot of members there will be plenty of members who are better suited by a different income stream or combination of income streams and the flexibility will be available for those members to make alternate arrangements.

A “composite” retirement income product means that, typically, MyRetirement will be made up of a number of different underlying income stream types including account-based pensions, lifetime annuities, deferred lifetime annuities (DLA) and group self-annuitisation (GSA) products.

The consultation paper, ‘Development of the framework for Comprehensive Income Products for Retirement,’ includes the following examples of different combinations of income streams that could make up a MyRetirement offer:

Development of the framework for Comprehensive Income Products for Retirement

Source: Government discussion paper, ‘Development of the framework for Comprehensive Income Products for Retirement.’

MyRetirement will provide members an efficient retirement income stream that provides:

  • peace of mind through security of a broadly constant stream of real income for life managing longevity risk;
  • higher income (compared to an account-based pension drawn down at minimum rates) and/or a guaranteed level of income; and
  • a component of flexibility allowing access to a lump sum and the ability to leave a bequest.

At a superannuation fund level, the Government is consulting on whether it should be compulsory for certain funds, for example, MySuper funds, to offer MyRetirement at some future time though, at least initially, it appears that MyRetirement won’t be compulsory for trustees.

Importantly, however, at a member level, take-up of MyRetirement will not be compulsory and while funds may offer MyRetirement, members will have a choice whether or not to use the fund’s MyRetirement alternative.

What does MyRetirement mean for advisers?

MyRetirement will not replace the need for financial advice. While MyRetirement will be available directly to the members of superannuation funds, licensed advisers will be able to advise on MyRetirement.

MyRetirement has been designed for average members but many members do not fall into the average bucket. Advice will therefore play a role for people with specific retirement needs. In those cases, another combination of retirement income products may be better suited to that person than a mass-customised MyRetirement product offered by the person’s existing fund.

However, there will be a number of implications for advisers. Indeed, the consultation paper also highlighted a number of issues for advisers, including disclosure requirements under the Statement of Advice (SOA).

Federal Treasury advise: 'It would be anticipated that a financial adviser providing personal advice on retirement income products would be required to disclose in the SOA why their recommended product would better meet the person’s needs over the mass-customised MyRetirement product offered by the person’s superannuation fund'.

A paper from Challenger’s Retirement Income Research team explains the ‘need-to-know’ parts of these reforms.

Read the full analysis on the new MyRetirement landscape.

 

This information is provided by Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670 for licensed financial advisers. It is not intended to be financial product advice or legal advice and should not be relied upon as such. Examples are illustrative only and should not be relied on by individuals when making investment decisions.