The CIPR legislation, whereby big super funds need to have a retirement products strategy in place by July next year and the ability to implement it by July 2022, has taken what seems like forever to get going. But funds should not take a breather because of the time extension they have been offered, according to Raewyn Williams.
The Comprehensive Income Product for Retirement (CIPR) idea was first discussed in detail in 2016. Legislation was introduced in February this year, but the implementation of so-called ‘CIPR products’ will not become compulsory until July 2022. But funds do not need to wait, nor should they, Raewyn Williams, the Australian managing director of research for implementation specialist manager Parametric, says.
“It’s actually the Government flagging that while super funds need to have a longevity risk theme in their strategy for members, there probably won’t be sufficient funds, in the government pension system, to keep people in the future in the same fashion that they have been kept in the past,” she says. The demographics and implications of an aging population are well known.
“There’s a lot of strain on the public purse,” Sydney-based Williams said in an interview last week. “The Government cannot change the direction of that strain and what it allocates to retirees. One can imagine that the purse strings are more likely to be tightened than loosened.”
The retirement incomes issue is not a simple one. There is the important issue of housing, for instance. The system is biased, through the old-age pension, towards married couples and those who own their own homes. Issues such as reverse mortgages, occupy the minds of bankers and other financial institutions, with many shying away because of reputational risk. No-one wants to give evidence at the next inevitable inquiry as to why they tossed grandma out of her home of 50 years.
Williams says that CIPR provides an opportunity, or even an imperative, for super funds to get to know their members better. For instance, do they know whether the member owns his or her home? Do they know what the member’s total financial position is? This is a great opportunity for the funds’ financial planners to be more active.
“I would also like to see super funds provide advice on the transition to aged care,” she says. “Funds are delaying work on the issue because of the lack of detailed regulations at the moment. But they don’t have to. There is nothing wrong with putting products in place and letting them evolve,” she says.
“If I ask a fund member what’s important to them, they invariably say that they want to feel like the fund knows them and puts them into the right products… There has been so much talk about the retirement issue and whether people should be forced to have an annuity [rather than lump sum] and what would this look like. There has also been a lot of work done on defensive equities. There’s no reason funds can’t push forward on that and put some planks in place now… It will require superannuation funds to ‘get over’ the powerful anchoring bias of an accumulation mindset to design good solutions for retired members and members in retirement-planning phase.”