Retirement Income Strategy – are you thinking broadly enough?

Each fund’s strategy must define several key determinations, as follows:

• the class of beneficiaries who are retired or who are approaching retirement;

• the period of retirement; and

• the meaning of retirement income.

My observations from talking with representatives from a number of funds is that the industry could think more broadly in defining these determinations. Here’s some food for thought.

Beneficiaries who are retired

Most of us align this definition with the condition of release 101 – retirement. This involves leaving a job after the age of 60 (or until 2024, reaching preservation age and permanently leaving all work). However, you could also consider members who retire earlier due to:

• total and permanent disability (TPD);

• underemployment; or

• achieving sufficient passive income outside super.

Trustees have limited capacity to assist members in the last two categories but have a number of avenues to assist TPD members, including lump sums or income streams funded by accumulated superannuation and/or insurance proceeds.

Beneficiaries who are approaching retirement

Every member who is not yet retired is approaching retirement. However, we tend to define this cohort as those retiring in five or ten years. It may be worth reconsidering this approach in light of the following:

• Retirement forecasts can be provided to members of any age.

• Default and choice investment strategies often begin to moderate growth allocation at least ten years prior to retirement.

• Most funds are attempting to reframe communication approaches for all members to focus on retirement income instead of lump sums.

As a side point, how many of you are aware that the condition of release 109A (purchasing a deferred income stream) is available at any age?

The period of retirement

Ideally, funds will not pick an arbitrary maximum age like 90 or 95 to define the end of retirement, and will instead recognise longevity risk and will include the entire natural life of their members in this determination. However, for the purposes of providing retirement benefits funded from superannuation, funds should also include the life of a spouse where applicable, and could also include the period until all dependents reach the age of 21. Providing income streams to these secondary and tertiary beneficiaries can be significantly more tax-effective than paying lump-sum benefits. This is not to suggest that each retirement solution needs to cater to this broad definition, but it is worth at least considering the possibilities.

The meaning of retirement income             

Following the above considerations, the meaning of retirement income may rightfully be broadened beyond income streams funded from accumulated superannuation (plus any age pension entitlement). It could also include lump sums and income streams funded from death and TPD insurance, or sourced from other assets such as other savings or home equity. Ideally, each fund has a strategy to support all their members when they stop work – whether the retirement is planned or unplanned – with sufficient income to provide dignity for life for themselves and all household members who depend upon them.

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