There has been considerable policy debate about the regulation and design of retirement income products.
The government has been developing a framework for Comprehensive Income Products for Retirement (CIPRs) following recommendations made by the Financial System Inquiry (FSI) way back in 2014. This has the laudable aim (and considerable challenge) of increasing the range of retirement income products to meet a wider variety of retiree needs and improve the standard of living of retirees. The first CIPR in the market is still some time away with some necessary policy settings (such as appropriate means test provisions for the Age Pension) still to come into effect.
There are other supporting measures still being considered. In the 2018-19 Budget there is a proposal to introduce a retirement covenant requiring trustees to offer CIPRs and to provide simplified, standardised information on retirement income products. The Treasury in a submission to the Royal Commission has indicated that options to expand intra-fund advice are being considered to help guide members into a suitable retirement income product.
Treasury has also indicated that another option under consideration is to expressly require financial advisers to demonstrate that any product they offer through financial advice would result in the member being better off when directly compared with a CIPR.
However, one area that has not been explored much in the context of retirement policy is what retirement means for retirees and what sort of support they really need.
One commentator has split retirees (or those of retirement age) into various categories, each with their own particular spending and income needs. As someone approaching traditional retirement age this is of particular relevance to me. It is also something to discuss with my wife. A spouse retiring can have a disruptive influence on their partner’s valued lifestyle and activities.
First off is the perpetual worker, for whom some sort of work for pay will remain part of their life for most of their remaining years. However, this can take a variety of forms, such as a normal job, contract work, consulting or entrepreneurial endeavours. It can be full-time, part-time or seasonal. Clearly having money continue to come in reduces retirement saving requirements.
Closely related to this, but without the pay, is the volunteer. A need to feel productive and to have contact with a variety of others is paramount, but the money is less important. Volunteer work can take a variety of forms, across a range of places and venues. Volunteering often involves travel and other expenses which need to be taken into account in financial planning for retirement.
The doting grandparent sees family as the greatest priority for retirement years. They are happy to be a babysitter and attendee at various events involving grandchildren and may sponsor family vacations if they are able to. Gifts for grandchildren can be expensive, and private school fees certainly are for a grandparent.
For the traveller, retirement is the time to hit the road. This may involve the campervan trip around Australia, the cruise round the Pacific, the grand tour of Europe or all of the above. Such a retirement lifestyle might require substantial retirement savings.
There is also the fun seeker. They are after unbridled and almost unlimited rounds of golf, tennis games, croquet, bridge, aqua aerobics, bingo and the like. Moving into a retirement community might be needed to find sufficient fellow participants. More adventurous fun seekers might seek out tribute bands for groups from the 1970s or even get to Rooty Hill RSL or the like to hear the original rockers on their reunion (retirement funding) tour.
Finally, there is the self-actualiser, wanting to do what they have always been passionate about. Digital cameras, art materials and music lessons do not come cheap. Fees for self-published books also can be quite significant.
The least likely preferred retirement is one where the retiree just wants to sit at home either watching television or staring at their partner (if they have one).
What is needed from the retirement savings system, and the proposed CIPRs, is the ability for retirees to do what they need and deserve. A core part of ASFA’s mission is to support policy settings which facilitate this.