As the end of the financial year approaches, Australian super funds are scrambling to implement more detailed retirement income plans for their members ahead of the deadline.
From 1 July 2022, Australian super funds will be required to provide each of their members with granular, detailed plans to help them achieve their retirement goals.
Under the Retirement Income Covenant (RIC), fund trustees will need to formulate, regularly review and implement a retirement income strategy that achieves and balances three retirement objectives:
- to maximise expected retirement income over the period of retirement
- to manage expected risks to the sustainability and stability of their retirement income, including longevity risks, investment risks and inflation risks
- have flexible access to expected funds over the period of retirement.
In short, the RIC puts the onus on super funds to ensure you’re on the right track to having enough funds to cover your expenses for your whole retirement
Read: How much do you need to retire?
The RIC was introduced by the Morrison government after its Financial System Inquiry and Retirement Income Review found that the average retiree could potentially be generating as much as 30 per cent more income by combining different super products.
Aaron Minney, head of retirement income research at Challenger, told Money Management the introduction of the RIC will drive innovation in new retirement products.
“This presents a significant opportunity for wealth managers and financial advisers,” he says.
“Retirement is often a trigger for people to seek financial advice, so the opportunity lies not only in a wider range of innovative retirement products, but also a growing awareness among retiree clients that retirement is different and requires more tailored and holistic advice.”
Read: Super co-contribution has cost $10 billion to help the rich
There has been frustration among financial planners and their clients for more than a decade that there were only really three retirement strategies in relation to super – managed lump sums from super, account-based pensions and basic annuity products.
Deloitte partner Andrew Boal says here are five key steps to implementing the requirements of the RIC.
Step one is to analyse their membership base to identify any groups that may be falling short of their retirement income needs.
The second is to review the fund’s existing products to see if any will suit their needs, and if not design suitable solutions for each member cohort.
Read: Four assumptions that could wreck your retirement
The third step involves creating individual member profiles that focus on factors that could impact their retirement outcomes, such as changing health or aged care needs.
The final step, Mr Boal says, is to put in place a process to regularly review and assess member outcomes and refine the retirement strategy if needed.
It seems ‘set and forget’ won’t cut it anymore. You should be hearing from your super fund about its plans after 1 July 2022.
If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.