ART leads retirement product race, others wrestle with covenant

Superannuation funds continue to grapple with their Retirement Income Covenant obligations, underscored by Australian Retirement Trust (ART) being the only fund that has successfully brought two products to market.

This is according to J.P. Morgan's newly published Future of Superannuation report, which canvassed nine superannuation fund executives and found that ART leads the pack in the take-up of longevity products.

Furthermore, ART's account-based pension and lifetime income product are a use case for being able to provide "the closest thing the Australian market has to real-world evidence on whether members will voluntarily adopt longevity protection."

In one "no bells and whistles" product, members commit capital and receive a starting income rate roughly 50% higher than the minimum drawdown rate, while the income lasts for life regardless of how long they live. If the member dies, the capital is returned to the estate.

The account-based pension, or "complex product" involves members deciding where to invest their savings.

"You have to rebalance that yourself. You're going to switch those assets. You're going to tell us how much to draw. You're going to manage your longevity," ART principal for retirement solutions Brnic Van Wyk said in the report.

The Retirement Income Covenant took effect in 2022, forcing trustees to provide members with an investment strategy in retirement.

The covenant does not specifically obligate super funds to develop or offer retirement income products.

A retirement income strategy can also mean providing a range of assistance to members, such as developing specific drawdown patterns, providing budgeting tools or expenditure calculators, providing factual information about key retirement topics, and providing forecasts to beneficiaries during the accumulation phase about potential income in retirement.

HESTA, on the other hand, is grappling with the fact that not every fund's membership is positioned to benefit from longevity products today.

"Affordable products that suit lower-balance members don't really exist today, however we certainly have to plan for the future membership, as our fund is predominantly women, and women live longer, a lifetime guaranteed income will become more critical and hopefully affordable," HESTA general manager retirement Shannon O'Shea said.

Meanwhile, the nation's largest super fund is in the works to develop a retirement income solution with TAL.

Head of retirement at AustralianSuper Jackie Ellis said while the build commenced this financial year, she notes the scale of the distribution challenge.

"As much as it's no simple thing to bring a whole new product to market, the actual challenge is getting meaningful take up in these products. Without that, you're not really making a difference," she said.

The Super Members Council (SMC) found that only 6% of retirees currently use a lifetime income product, despite two-thirds of pre-retirees being aware of them.

Commenting on the report, which also delved into retirees' confidence-to-spend gap, longevity risk and advice, J.P. Morgan head of markets and securities services sales for Australia and New Zealand Stephen Jani said the industry's transition from building retirement savings to supporting Australians through retirement is one of the defining challenges of our time.

"This year's report brings together the perspectives of leaders across the sector as they navigate this transition and work to deliver meaningful outcomes for Australians in retirement," he said.