Most UK pension people will look at this advert (on Linked in) with bemusement, some may think it a scam, but I know the people behind this initiative and that, in Australia, they are in earnest for good. This article looks at a practical solution to a societal issue – our ageing; it asks whether we might see this direct talking in the UK before too long.
posted by Jim Hennington
Half of baby boomers have already retired. Yet the reforms to improve retirement solutions are still overdue. Most funds still run simple account-based pensions where all risks are borne by members. If they spend to little their savings overshoot what’s needed. If they spend too much (or live too long) they run out. Come on Australia we can do better than this.
Retirement product designs that provide 15% to 30% higher income and cannot run out, are ready. Life Pensions provide older Australians with significant peace of mind compared to 100% account based pensions. Super fund trustees, click here to white label one for your fund
The link takes you to the products features and benefits
A classic financial promotion
The first thing I see is classic marketing, the advert speaks directly to the trustees of large Australian Superannuition Schemes and calls on them to incorporate Real Lifetime Pensions into their retirement offering under the Super’s white label.
The product does not interfere with the Super’s fund revenues as it relies on the growth of the super to drive its performance, the product is simply an insurance against individual members living too long and it’s selected by the member against the alternative option of chancing it.
To top it off, it appeals to the nation’s sense of pride in how Australia is managing its retirement risk. “Come on Australia we can do better than this”.
Why aren’t we doing this here?
On the face of it, UK DC plans and their trustees face the same demographic. Half of our baby boomers have also retired.
However there are some differences; firstly Britain still has twice as much invested in DB plans as in DC and the DB plans are paying out to senior white collar workers and , especially to public sector workers – some entire work forces.
Secondly- other than early movers to DB closure, the majority of single employer DC trusts in the UK are still under funded for retirement, account balances of more than 100,000 are still rarities. But these schemes look rich when compared with auto-enrollment schemes where some account balances are barely large enough to pay the levies trustees have to pay. In short there is not yet sufficient need for trustees to take action,
Thirdly- the FCA is holding out hope of a non-advised solution to the dilemma people have when turning pension pot to retirement plan. It’s called “investment pathways” and the Government has commanded providers of contract based workplace pensions and unadvised SIPPs to set these up for April 2021. The UK Government is intervening
Stronger DB -weaker DC and pre-existing Government intervention – that’s why….but
But things are changing, the impact of DB is waning and the DC pots are growing, there is no certainty that investment pathways will prove a success and from the sound of the product design and marketing of investment pathways , there is a good chance it will fail.
If investment pathways don’t turn out the latchkey to post-freedom security, then the search for financial products with “defined ambition” will continue. One ready-made solution may be CDC, which while still to be fully legislated for, is well modeled and could be used to help people manage their longevity risk as the Real Lifetime pension.
The pure CDC product depends for insurance on creating its own mortality pool and doesn’t rely on reinsurance from the market, but in terms of reliance on the underlying investment structure of the CDC scheme to pay a wage in later age, the Real Lifetime pension acts like a CDC arrangement.
And with a degree of flexibility and control in the mix between guarantees and growth – afforded to Super members, the Aussie plan is satisfying the need of many – especially in early retirement – to be in control of their income needs.
Something for the UK to consider
We should watch and see the appetite of Super Trustees to take on the Real Lifetime Pension. I don’t think we are ready to embrace such options yet, nor are we ready to embrace CDC yet, but that should not make those in strategic roles , dismiss the opportunity .
And even if we don’t directly import Real Lifetime pensions into the UK, we can certainly lean a thing of two from Optimum Pensions about how to market with a straight bat!
Jim -the man behind the plan
