Retirement Income has hit the C-Suite in corporate Australia. First with the move of Ben Hillier from QSuper to AMP to become GM Retirement Solutions last year. More recently, with last week’s announcement of the elevation of Shawn Blackmore to the role of Chief of Retirement at AustralianSuper. Hillier’s brief is to enable AMP to regain and maintain leadership in the retirement space. He’s now been working on this challenge for the past 12 months. It’s a big job.
But the prize is even bigger. To quote Alex Dunn from Rainmaker, assets in super held by those aged over 65, accounted for 20% of total savings in 2015 – and will be 40% by 2041. And these super savings are no longer ‘locked up’, but (post preservation age) able to be activated and managed. That’s an awful lot of the country’s wealth in need of care and guidance.
So exactly which retirement problems are in need of a solution?
Isn’t our retirement income system functioning reasonably well?
I spoke to Hillier last week about how he believes Australia’s retirement income system is working. And which aspects most urgently require attention.
Let’s start with the positives.
According to Hillier, aspects of our broader pension system are world class when it comes to accumulation and compulsory preservation. He quotes the 2020 Retirement Income Review, that concludes most Australians have adequate means to fund a level of retirement income commensurate with their pre-retirement income.
But he believes that our system is not firing on all cylinders, particularly in regard to the conversion of capital to income.
‘I applaud the succession of government initiatives and new products and services. There is a lot of support for trustees and a majority of retirees are drawing an Account-Based Pension (ABP). During the Covid pandemic, minimum drawdowns were halved and this is now extended by one year. I suspect it’s no longer necessary. And lower drawdowns will exacerbate the problem of chronic underspending – with 90% of balances unspent at death.
Extremes are also a problem.
It’s inefficient combining a world class accumulation system and ‘not so good’ decumulation process. There’s a focus on preserving capital. I liken it to a water tank where the lucky few can live off the top ‘overflow’ tap (earnings) and too few use enough from the bottom tap (their savings). So wealth is conserved for the next generation. We need to give people the confidence that they won’t run out.’
AMPs own research underscores this need, with the recently released Financial Wellness report showing an increasing number of Australian workers concerned that they are underfunded for retirement. This is revealed in the responses showing an expectation of a $400,000 nest egg, which contrasts with the belief that $600,000 is what will actually be needed.
Comments Hillier,
‘There is little concept or understanding of the power of compounding.
This highlights another problem with super, which is predicated on the notion that it needs to be compulsory as we don’t trust people to make good decisions about retirement savings.
Then at retirement, we do an about face and hand it over in a wheelbarrow, leaving them to fend for themselves in factoring in sequencing and inflation risks.
So when it comes to the efficacy of our retirement income system, yes, we are going in the right direction. But we are still on the journey. The super system is now mature. The level of the Super Guarantee is appropriate, although we need to acknowledge that some sectors continue to be left behind. The Retirement Income Covenant has also been a forward step.’
Next he spoke on that ever-present elephant in the financial services room, trust.
‘Trust is crucial. And yes, AMP bears responsibility for past poor behaviours and for conflicted advice. The industry deserved a wake-up call. [correction]
Trust remains the key, critical defining principle and what we now require is single issue – say, episodic – financial advice. When we go to a doctor, we seek episodic advice. Our grandfather’s full health history is irrelevant if we’re bothered by a corn on our little toe. We just want one problem solved and a solution that’s scaled to suit the size of the problem.’
Hillier also believes that the process of financial advice for retirement is cumbersome, compliance-heavy and unprofitable.
‘There is a major paradox here. Lots of people need advice. Only the (relatively) wealthy can afford it. And they need it less than those with lower savings.
I believe in the value of advice and Michelle Levy’s early findings*. I don’t wish to see consumer protections severely weakened, but things could be improved. For instance, unless you pay for a full plan you can’t receive really obvious simple advice in answer to the question, “I’ve reached preservation age, what should I do?”
The obvious answer is to consolidate super and start an Account-Based Pension.
We need a nudge towards ABPs as there are billions of dollars in retirement savings currently being taxed in the accumulation phase.
Levy’s notion of sensible advice will go a long way, but there will still be a significant gap in the delivery of advice to those who need it the most. At the moment the pendulum has swung too far – we will never completely stop unconscionable actions, but we can enforce regulations.
We badly need good, accessible advice. Advice that will put retirees in a better position.’
Whilst the regulation of such accessible advice lies in the hands of politicians and policymakers, the creation of a user-friendly lifetime pension style ABP is definitely within Hillier’s locus of control. Enter MyNorth Lifetime, the recently released solution from AMP.
‘I moved across from QSuper where I had worked on a lifetime pension product. As GM Retirement Solutions, my brief was to develop new retirement solutions. Retirement is complex, there are many differences in wealth and other life markers, so there is no one-size fits all solution. And there is a human element in the genuine struggle to understand needs and options across Centrelink, tax, superannuation and aged care.
There are a lot of sub-optimal choices that people can make. Our first focus was on the advised market, to speak to those receiving advice and better understand their fears and needs.’
Hillier’s team’s research has culminated in the recent release of the ‘MyNorth Lifetime’ account. He doesn’t like to describe it as a ‘product’, rather an account. Based on their findings, the main features of this tax-free accumulation account, are low administration fees, high transparency, and higher rates of income for longer. As a lifetime income stream it avoids inclusion in the assets test for the Age Pension. It also pays account holders an annual ‘bonus’ in the form of a ‘reverse’ life insurance policy.
These features and benefits are complex, so MyNorth Lifetime is only available from an adviser.
This means, of course, that the paradox of ‘episodic’ advice for many is far from solved.
And that, at this stage, this account will only be available to those able to pay for advice, as it is currently defined.
But could this innovative income stream be the hybrid solution that retirees who want to solve the paradox of longer life expectancy, with financial income security, have been seeking?
Only time and policy settings will tell.
For it to become more widely available, a lot is still clearly resting on responses to Ms Levy’s report.
In the meantime Hillier and his team will continue to work on with their next innovative retirement solution.
‘We’re also looking at simpler, ‘non-advised’ solutions’, he adds.
Retirement income hits the C-suite
Retirement Income has hit the C-Suite in corporate Australia. First with the move of Ben Hillier from QSuper to AMP to become GM Retirement Solutions last year. More recently, with last week’s announcement of the elevation of Shawn Blackmore to the role of Chief of Retirement at AustralianSuper. Hillier’s brief is to enable AMP to regain and maintain leadership in the retirement space. He’s now been working on this challenge for the past 12 months. It’s a big job.
But the prize is even bigger. To quote Alex Dunn from Rainmaker, assets in super held by those aged over 65, accounted for 20% of total savings in 2015 – and will be 40% by 2041. And these super savings are no longer ‘locked up’, but (post preservation age) able to be activated and managed. That’s an awful lot of the country’s wealth in need of care and guidance.
So exactly which retirement problems are in need of a solution?
Isn’t our retirement income system functioning reasonably well?
I spoke to Hillier last week about how he believes Australia’s retirement income system is working. And which aspects most urgently require attention.
Let’s start with the positives.
According to Hillier, aspects of our broader pension system are world class when it comes to accumulation and compulsory preservation. He quotes the 2020 Retirement Income Review, that concludes most Australians have adequate means to fund a level of retirement income commensurate with their pre-retirement income.
But he believes that our system is not firing on all cylinders, particularly in regard to the conversion of capital to income.
‘I applaud the succession of government initiatives and new products and services. There is a lot of support for trustees and a majority of retirees are drawing an Account-Based Pension (ABP). During the Covid pandemic, minimum drawdowns were halved and this is now extended by one year. I suspect it’s no longer necessary. And lower drawdowns will exacerbate the problem of chronic underspending – with 90% of balances unspent at death.
Extremes are also a problem.
It’s inefficient combining a world class accumulation system and ‘not so good’ decumulation process. There’s a focus on preserving capital. I liken it to a water tank where the lucky few can live off the top ‘overflow’ tap (earnings) and too few use enough from the bottom tap (their savings). So wealth is conserved for the next generation. We need to give people the confidence that they won’t run out.’
AMPs own research underscores this need, with the recently released Financial Wellness report showing an increasing number of Australian workers concerned that they are underfunded for retirement. This is revealed in the responses showing an expectation of a $400,000 nest egg, which contrasts with the belief that $600,000 is what will actually be needed.
Comments Hillier,
‘There is little concept or understanding of the power of compounding.
This highlights another problem with super, which is predicated on the notion that it needs to be compulsory as we don’t trust people to make good decisions about retirement savings.
Then at retirement, we do an about face and hand it over in a wheelbarrow, leaving them to fend for themselves in factoring in sequencing and inflation risks.
So when it comes to the efficacy of our retirement income system, yes, we are going in the right direction. But we are still on the journey. The super system is now mature. The level of the Super Guarantee is appropriate, although we need to acknowledge that some sectors continue to be left behind. The Retirement Income Covenant has also been a forward step.’
Next he spoke on that ever-present elephant in the financial services room, trust.
‘Trust is crucial. And yes, AMP bears responsibility for past poor behaviours and for conflicted advice. The industry deserved a wake-up call. [correction]
Trust remains the key, critical defining principle and what we now require is single issue – say, episodic – financial advice. When we go to a doctor, we seek episodic advice. Our grandfather’s full health history is irrelevant if we’re bothered by a corn on our little toe. We just want one problem solved and a solution that’s scaled to suit the size of the problem.’
Hillier also believes that the process of financial advice for retirement is cumbersome, compliance-heavy and unprofitable.
‘There is a major paradox here. Lots of people need advice. Only the (relatively) wealthy can afford it. And they need it less than those with lower savings.
I believe in the value of advice and Michelle Levy’s early findings*. I don’t wish to see consumer protections severely weakened, but things could be improved. For instance, unless you pay for a full plan you can’t receive really obvious simple advice in answer to the question, “I’ve reached preservation age, what should I do?”
The obvious answer is to consolidate super and start an Account-Based Pension.
We need a nudge towards ABPs as there are billions of dollars in retirement savings currently being taxed in the accumulation phase.
Levy’s notion of sensible advice will go a long way, but there will still be a significant gap in the delivery of advice to those who need it the most. At the moment the pendulum has swung too far – we will never completely stop unconscionable actions, but we can enforce regulations.
We badly need good, accessible advice. Advice that will put retirees in a better position.’
Whilst the regulation of such accessible advice lies in the hands of politicians and policymakers, the creation of a user-friendly lifetime pension style ABP is definitely within Hillier’s locus of control. Enter MyNorth Lifetime, the recently released solution from AMP.
‘I moved across from QSuper where I had worked on a lifetime pension product. As GM Retirement Solutions, my brief was to develop new retirement solutions. Retirement is complex, there are many differences in wealth and other life markers, so there is no one-size fits all solution. And there is a human element in the genuine struggle to understand needs and options across Centrelink, tax, superannuation and aged care.
There are a lot of sub-optimal choices that people can make. Our first focus was on the advised market, to speak to those receiving advice and better understand their fears and needs.’
Hillier’s team’s research has culminated in the recent release of the ‘MyNorth Lifetime’ account. He doesn’t like to describe it as a ‘product’, rather an account. Based on their findings, the main features of this tax-free accumulation account, are low administration fees, high transparency, and higher rates of income for longer. As a lifetime income stream it avoids inclusion in the assets test for the Age Pension. It also pays account holders an annual ‘bonus’ in the form of a ‘reverse’ life insurance policy.
These features and benefits are complex, so MyNorth Lifetime is only available from an adviser.
This means, of course, that the paradox of ‘episodic’ advice for many is far from solved.
And that, at this stage, this account will only be available to those able to pay for advice, as it is currently defined.
But could this innovative income stream be the hybrid solution that retirees who want to solve the paradox of longer life expectancy, with financial income security, have been seeking?
Only time and policy settings will tell.
For it to become more widely available, a lot is still clearly resting on responses to Ms Levy’s report.
In the meantime Hillier and his team will continue to work on with their next innovative retirement solution.
‘We’re also looking at simpler, ‘non-advised’ solutions’, he adds.
*Michelle Levy is chairwoman of a Quality of Advice Review due to report in mid December this year.