As long as superannuation has existed in Australia, retirees have used account-based pensions (ABPs) as the main vehicle to draw on their savings in retirement.
While ABPs offer great flexibility in terms of choosing investment options and making withdrawals, they don’t provide the certainty of an income for life. This leaves ‘many Australian retirees worried they will run out of money before they die’, according to Treasury’s Retirement Income Review 2020.
Many advisers have therefore looked to annuities to provide their clients with a guaranteed risk-free income stream that will last for life. But annuities can be quite inflexible. They don’t allow you or your clients to select or manage underlying investments, make lump sum withdrawals or adjust income over time to suit their changing needs.
Innovate or…
So as the population ages and super guarantee payments continue to increase to 12% by 2025, the Government has called for greater innovation in the retirement phase.
At the same time, the 2022 Retirement Income Covenant requires all Trustees to consider strategies for their members to draw on their super savings in retirement.
This should lead to significant innovation in retirement solutions and advice. And already we’ve seen a new innovative retirement income stream (IRIS) category added to the Superannuation Industry Supervision Act.
Super funds and platforms are set to launch a range of IRIS solutions into the Australian market over the next decade, aimed at delivering the certainty of a higher income for life, along with greater flexibility.
Spend with confidence
While ABPs continue to make up the backbone of retirement income, more advisers are using IRIS solutions to offer their clients:
- Centrelink assets and income test discounts, much like annuities
- access to a full platform of investment options, allowing advisers to tailor a portfolio in line with their investment philosophy and the client’s risk profile.
- insured annual bonus payments topping up the retiree’s account
- a range of deferral options and drawdown flexibility, enabling strategies that haven’t been possible until now.
Australians are seeking more comfort in retirement. They need the confidence to spend their super savings without the fear of running out. By coupling traditional ABPs with innovative retirement income streams, your clients can achieve just that.
Find out more about North’s retirement products here.
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