Solutions for retiree clients in a DC world

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Developing effective and sustainable post-retirement solutions is one of the most critical challenges for the retirement industry and policy makers in Australia.

The 2013 Melbourne Mercer Global Pension Index has measured the adequacy, sustainability and integrity of Australia’s pension system, to see how it might be improved.

Although the integrity of the system has been enhanced by stronger regulatory requirements, the research found areas where the system could provide better retirement benefits, increased sustainability, and greater trust.

“Australia has arguably been a trail blazer in terms of adopting a DC system,” says Dr David Knox, senior partner at Mercer and author of the research.

“However, the conversion of DC benefits into adequate and sustainable retirement incomes remains a largely unresolved problem in many countries, including Australia.”

Suggested measures to improve Australia’s system include increasing labour force participation among older workers, raising the minimum access age to get benefits from private pension plans, and removing legislative barriers to encourage more effective retirement income products.

Ideal features of retirement products would include:

  • Limited access to a lump sum benefit at retirement
  • Access to some capital for unexpected expenses and some spending flexibility
  • Income product for initial retirement (annuity or drawdown with adequacy and security)
  • Pooled insurance-type product with longevity protection (deferred annuity or pooled product from pension plan or insurer)
  • Structure that allows phased retirement – people continue working (part-time) while drawing on retirement savings

“As countries grapple with rising life expectancies, increased government debt, uncertain economic conditions and a global shift to DC plans, there are still many lessons to be learnt and new solutions to be found, particularly for the post-retirement years,” says Knox.

“Developing effective and sustainable post-retirement solutions has to be one of the most critical challenges for policy makers and retirement industries around the globe.”

How do you think Australia could produce better retirement outcomes for retiree clients? Share your thoughts below.