Development of alternative retirement income products in Australia

Development of alternative retirement income products in Australia

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Speaker(s): Nick Callil (Willis Towers Watson), Tim Furlan (Russell Investments)

The comprehensive income products for retirement system

In 2014 Australia held a broad financial system inquiry. One of the recommendations of that inquiry was the development of Comprehensive Income Products for Retirement (or CIPRs) offered by superannuation (pension) funds that would guide individuals on investing and drawing down a balance, typically from a defined contribution account, as an income over their retirement.
From a subsequent discussion paper in CIPRs issued in December 2016 and related discussions with industry, s it has become apparent that the Australian Government is seeking to:

  • provide an increase in the level of retirement incomes; and
  • ensure that the income is broadly constant for life; while
  • allowing continued flexibility (including to withdraw a lump sum during retirement).

The product configuration most likely to achieve those objectives is a hybrid arrangement which combines defined contribution and longevity pooling elements. Given the requirement for longevity pooling there has been interest in whether CIPRs provide an opportunity for insurers to offer structures with that pooling to defined contribution funds. It is also proposed that actuaries be required to certify that the new products are likely to sufficiently meet their objectives.

At the same time the Australian Government has been investigating how behavioural nudges can guide individuals towards appropriate retirement decisions and how those nudges can be incorporated into the system for these new products.

This presentation provides an overview of what a CIPR is and the benefits that it might offer. We also discuss the issues that have arisen as the Australian Government and industry have worked through the proposed design and regulatory framework for these products.
The presentation offers an insight into possible innovation in retirement income products and the opportunities for actuarial input into defined contribution retirement systems.

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