The comprehensive income product for retirement (CIPR) framework focuses disproportionately on “product” to address individual requirements in retirement when in fact, it should be defined as a “solution”, according to Morningstar Australasia.
In its submission to the Federal Government’s consultation on the ‘Development of the framework for Comprehensive Income Products for Retirement’, or the MyRetirement framework, Morningstar argued for an approach that moved beyond product to one that also empowered “trustees to leverage data and technology to provide a digital advice component in the provision of retirement income solutions.
Morningstar managing director, research strategy, Asia-Pacific, Anthony Serhan said Morningstar recommended a “best of breed” approach to MyRetirement, which would combine low-cost digital advice steered by data and technology with a blend of product options, which he said would empower trustees and retirees to choose how retirement savings would be allocated across products.
“While we believe that the Government’s push to innovate in the retirement space is a step in the right direction, we also believe that the current framework is too product-centric and focuses too much on solutions using today’s tools,” Serhan said.
“What we need is an outcome that provides a blueprint for the coming decades. The Government must look to address the need for flexibility that enables superannuation trustees to provide quality, yet cost-efficient financial advice.”
The submission also argued that while longevity insurance should be more readily available, it should not be achieved purely by combining it with other components into a single products, as this would add complexities to what was already a complex product by incorporating additional features, and would prevent a competitive market in such products.
The submission also said CIPRs were considered as different from anything attempted thus far, it would not benefit everyone due to investors’ unique circumstances, and quoted a study to argue that requiring or forcing annuitisation were not popular.
“A two-pronged approach that reduced barriers to offering more personalised advice, along with the option of utilising CIPRs would be much better than a single product to help retired investors meet their specific goals,” the submission said.
Morningstar also disputed the statement that incomes from CIPRs could be 15 to 30 per cent higher than those from the current strategy of drawing the minimum amount from an account-based pension.
“Will longevity ‘products’ increase retirement outcomes for all Australians? When you look at the mechanics, no they won’t,” the submission said.
“Very simply, they will transfer assets between those who die early to those who die later,” it said, acknowledging it would benefit some and add value to many more.