CIPRs: What they are

5 min read

16 Jun, 2018

It’s no secret: we’re all getting older. Australia’s ageing population, much like elsewhere in the world, is causing governments, health providers and policy makers to completely rethink their approach.

With life expectancy on the rise, one of the most urgent considerations for the approximately 700 Australians retiring every day is whether their retirement savings will last the distance.

It’s for this reason that, from 2020, the Federal Government has announced a proposed requirement for superannuation funds to offer Comprehensive Income Products for Retirement (CIPRs) – as recommended by the 2014 Financial System Inquiry – to provide their members with a level of income for life, no matter how long they live.

The aim of CIPRs is to increase the range of retirement income products available to help ensure retirees’ savings last their entire lifetime.

According to the report from the Financial System Inquiry, incomes from CIPRs could be up to 15% to 30% higher than drawing the minimum amount from an account-based pension.

What changes for super fund trustees?

In the future, fund trustees will take on a greater role in assisting their members’ transition into retirement, but there is currently no obligation on funds to offer a CIPR.

The Government has made it clear that CIPRs will need to last the full lifetime of an individual member, not just to life expectancy. For a superannuation fund, that means ensuring that CIPRs are designed in such a way that even if the member lived to 105, they would continue to receive broadly the same level of income from the product. A 100% allocation to an account-based pension – which is a common choice for today’s retirees - would not meet the definition of a CIPR as these products are generally not designed to provide guaranteed income for life.

What are the risks involved in retirement income?

While the superannuation industry has successfully focused on building members’ savings in preparation for retirement, the risks associated with managing and spending those savings are becoming greater.

When we enter retirement, we shift from the stage of accumulation of wealth to decumulation – dipping into our savings to fund the cost of living and our lifestyle in retirement.

For retirees drawing an income from their investment portfolio, the sequence of returns becomes crucial. Being exposed to negative market movements in the early stages of retirement can reduce the amount of income they can withdraw over their lifetime.

A retiree’s ability to recover from poor investment returns is limited because they don’t have the option to keep working and contribute more. And because nobody knows how long they’ll live, this further complicates planning around retirement income needs.

A retiree’s financial goals are different to those of people in the accumulation stage of life, and may include access to capital for emergency spending, having peace of mind and leaving a bequest. All of these financial goals require different considerations from the accumulation phase and should be discussed with a financial adviser.

What determines the success of a plan for retirement income?

When we’re working, our aim is to accumulate as much as possible, usually with a higher level of risk tolerance to achieve higher returns in the long run. 

Assessing the success of a retirement income plan is far more complicated. Retirees must ensure their savings cover everyday living costs, emergency items, expenditure beyond life expectancy, and any bequests they plan to make. That means retirees need to know how spending in their first year of retirement is going to affect the availability of income in year 20 and beyond.

Any proposed framework that seeks to increase the range of retirement income products available is likely to improve outcomes for retirees and contribute to what success looks like.

Remember, you don’t need to wait until 2020 to access retirement income products that provide you with guaranteed income for life. Challenger offers a range of products to suit your individual circumstances which provide you with security and the peace of mind that your retirement income will never run out, regardless of how long you live. Speak to your financial adviser or contact Challenger on 13 35 66.


Important information: This information is general information only and does not take into account any person’s objectives, financial situation and needs. Before making an investment decision, talk to your financial adviser or visit for more information.