‘Surprising and disappointing’ lack of innovation in retirement products

Despite an ageing population, the “surprising and disappointing” lack of retirement product information is holding members back, an industry expert has revealed.

In a media briefing, Zenith Investment Partners chief executive David Wright revealed that members approaching retirement have different needs to every other phase of wealth management, yet the industry lags behind in products for these Australians.

“We have known for some time that a population bulge has been moving through the system, so it is both surprising and disappointing that, as an industry, we haven’t made better progress on retirement products or portfolio construction,” he said.

Not only are a lack of innovations in the retirement phase hurting members, Mr Wright noted there remain unresolved issues about how the superannuation system is serving those in accumulation phase.

Commenting on the government’s Your Future, Your Super reforms, Chant West general manager Ian Fryer said the Your Future, Your Super legislation will go a long way to resolving these issues, albeit having reservations about the the superannuation performance test regarding the use of one metric over a single period to determine whether a fund passed or failed.

“The asymmetry of consequences of the proposed performance test – between not meeting the benchmark and doing much better than it – will inevitably lead to poorer investment outcomes for members in some funds, as the focus shifts in those funds from long-term performance to passing the test,” he said.

Rather than having a single test, Mr Fryer stated he believes there should be separate tests for investment performance and administration fees and that both tests must be met by each fund.

“This is at odds with Treasury’s push for one test. However, if there must be only one test, we agree that it should include administration fees. But given significant changes in administration fees in recent years and historical problems with inconsistent disclosure, the administration fees included in the test should be either current or recent fees, not historical fees that no longer have any relevance to member outcomes,” he continued. 

Mr Fryer also questioned the stapling of a member to one fund for their entire career, urging the government to better address members’ needs under the proposed reforms. 

“The current system of defaulting new employees to the employer’s default fund has resulted in millions of unintended multiple accounts. While Protecting Your Super has dealt with this to some extent, it does make sense to stop the creation of new unintended multiple accounts through an approach such as stapling, even though there is a very real danger of members remaining in funds that are not suited to them based on industry and insurance cover,” he continued.

“However, if we are going to introduce stapling, the ATO will need to provide a system from day one where details of new employees can be electronically uploaded in bulk, and stapled fund details are provided to employers in bulk, not just one by one. If this is not available, then the introduction of account stapling should be delayed,” Mr Fryer concluded. 

Whatever you decide to do, we can work with you to make sure your strategy suits your lifestyle, circumstances and financial goals. Contact us at 08 8231 4709 or info@centrawealth.com.au

Article by Cameron Micallef on May 31, 2021 – nestegg.com.au

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