The government should abandon the Retirement Income Covenant proposed last year, if it can't sufficiently remediate its flaws by the deadline, the Productivity Commission says in the final report.
Treasury has already extended the deadline on Comprehensive Income Retirement Products to July 2022, and most super funds have done very little work on it.
The key point of the Retirement Income Covenant (which was released after the PC draft report) was that it asked all superannuation funds to offer a new, hybrid retirement product that goes beyond the standard account-based pensions.
CIPRs need to provide retiring members access to capital while managing the risk that they might outlive their ABP balances.
Designing such a product has been a challenge.
Now the Productivity Commission's final report released to the public today has asked the Government to reassess the design and implementation challenges of CIPRs - and walk away from it if it needed to focus on more important issues for retirees.
"While the implementation of the Covenant has been delayed to 2022, if implemented it will more rapidly expand and diversify the pool of retirement income products and potentially add further intricacies to the already complex problems facing retirees," PC said in its report.
"Decisions at this point can markedly affect a person's future wellbeing - sometimes irreversibly so - and can affect the Government's Age Pension liabilities."
The Commission also said trustees do not always want to offer these products, and forcing them to do so may conflict with their obligations to act in members' best interests.
Further, there are real risks in nudging many members into risk-pooled products that may not suit their needs and are costly to get out of, the report said.
The Commission's final recommendation is to delay the Covenant. It also wants funds to focus on giving pre-retirees better access to information that could help them understand their options better.
"A broader underlying problem is that members at all stages find the super system too hard to navigate, and do not know where to turn for help.
"Members get excessive choice at the expense of less comparability, and even highly engaged and financially literate members struggle. Many would like more relevant and simpler information to help them find and compare products and, if necessary, switch," it said.
In an emailed response, an Industry Super Australia spokesperson said that it supports the reassessment of the CIPRs framework, but for different reasons than the Productivity Commission.
ISA said while the Australian retirement system should change its focus from accumulation to retirement income, a MySuper-type approach wasn't the answer.
"We do not support the CIPRs approach because it establishes a point-of-sale where members have perhaps their most significant assets and must choose one or more products," the spokesperson said.
"The critical issue is how to connect members to good products. The CIPRs approach uses member choice and sales, with product regulation similar to MySuper, which is an approach that has not worked.
"Instead, quality filters with defaults work."