Guided Choice

Thought Leadership

Guided Choice

07 Sep, 2021

Retirement is the new frontier of superannuation.
The pool of savings in retirement is growing, now is the time to think more about the retirement offering to members. Getting retirement right can lead to the ongoing sustainability of a fund. Guided choice identifies a way for trustees to implement a meaningful and sustainable retirement offer with the best interests of members front of mind. It’s about assisting members  in making their choice of retirement solution, by providing guidance at a cohort level.

Challenger has developed a new cohorting framework which identifies a way for Trustees to test and design retirement portfolios, taking into consideration the characteristics of their member base. This framework could be applied with guided choice or whatever member engagement approach they use.  

The guided choice concept was used by the Retirement Income Review in the context of the introduction of the retirement income covenant which the Government has recently confirmed as commencing on 1 July 2022. What this means is that the time for super funds to be seriously thinking about a guided choice framework (or their preferred alternative member engagement solution) is now.

Currently, the usual option offered to most members at retirement is an account-based pension (ABP), which does not always provide a better outcome for all cohorts of members. In this paper, trustees are encouraged to consider a range of portfolio design principles, such as a blended retirement product which offers longevity protection and an ABP. Financial modelling explained in this paper has shown that a broad cohort of retirees might be better off with a blended retirement product vs an ABP alone.