The next generation of hybrid retirement income products will allow retirees to access their capital at any time – as well as give them a regular annuity payment.
The Retirement Income Covenant (RIC) has been in effect for almost four months and the first new retirement income products based on the recommendations are hitting the market.
The covenant requires super funds to formulate retirement income strategies that will give members better outcomes in retirement.
The Australian Prudential Regulation Authority (APRA), the government body overseeing the RIC, says the new regulations “are an important step in broadening industry focus beyond the accumulation phase to advance the decumulation, or retirement, phase of superannuation.”
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Put more simply, APRA fears the super industry is too focused on building people’s super balances and not focused enough on members confidently using these balances to fund their retirement.
Adrian Stewart, CEO of Allianz Retire+, told Super Review that innovating in the decumulation phase is more difficult than in the accumulation phase.
He said many members shy away from annuities and account-based pensions because they’re concerned the payments would stop at death and the money would be lost.
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“People worry they will forfeit money in death in traditional annuities, but the next generation [annuities] can provide flexibility and certainty and give access to capital if people’s circumstances change. The estate will be the beneficiary on death of the remaining assets,” he said.
“Retirees want certainty that they can enjoy the life they want without running out, and annuities provide that guaranteed income and can be an anchor in their portfolio.”
One such retirement innovation is AMP’s MyNorth Lifetime product, which it’s calling a hybrid between an annuity and an account-based pension, giving members the best of both worlds.
AMP partnered with life insurer TAL to develop the product and claims it offers higher lifetime income rates than a traditional annuity.
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AMP CEO Alexis George told The Sydney Morning Herald this is because the new product is not subject to the same regulatory requirements as an annuity.
“It is part of the plan to give people confidence in retirement, and I think a lot of people are genuinely scared when they move into retirement about what it means to them,” she said.
“That’s why you see they don’t spend their money. This [new retirement product] gives greater peace of mind in retirement and the confidence to spend savings and live life to the full.”
Would you consider a retirement income product such as this? Or are there better ways to organise income in retirement? Let us know in the comments section below.
