Retirement Income Covenant Submission

Rice Warner has provided the Department of Treasury with a response to their call for submissions regarding the Retirement Income Covenant Paper released by the Government following the 2018-19 Budget.

The Retirement Income Covenant will require funds to develop retirement income strategies for retirees to improve their outcomes in retirement.

To support the development of this Retirement Income Covenant, the Paper also outlines supporting principles.  Most notably, the supporting principles have defined the requirements for a Comprehensive Income Product in Retirement (CIPR).

We are supportive of the Retirement Income Covenant as we believe further development of retirement income strategies will improve retirement income outcomes for fund members.  However, we have identified several potential issues with the structure and implementation of the proposed CIPRs framework.

Our main issues with the proposed CIPRs framework are:

• Given the complex nature of people’s personal financial circumstances, financial advice will need to be provided to offer a CIPR product under the proposed framework.  This will likely make these products relatively more expensive which will reduce the take-up of these products.
• For CIPRs to succeed, we consider they should be a component of a default retirement strategy.
• Trustees should not have to offer a CIPR product if there is no compulsion for the member to take it up.
• The proposed framework should not mandate the types of products required to provide longevity protection (for example, not every retiree will want constant income throughout retirement).
• The relatively short deadline for implementation will likely result in limited product innovation and limited opportunity for additional competition from new entrants.

A more detailed discussion of our issues with the proposed framework is included our submission, which can be found by clicking the link below. We have also included some CIPR products designs that could improve retirement income outcomes for many retirees. We are seeking to clarify with Government whether products designed in this way would qualify as a CIPR.