Harry Chemay’s submission to the Australian Treasury is the best study of the problems facing retirees with DC benefits I have read.  It is precisely the read I’d like to have if I worked for the Australian Treasury.

This is the slideshare link to it, if that is garbled, contact me at Henry@agewage.com for the original PDF.

It is comforting to know that the three main issues for Australian’s are the three main issues facing me , a retirement saver with too much pot and too little pension. Britain too needs help

o supporting members to navigate retirement income
o supporting funds to deliver better retirement income strategies
o making lifetime income products more accessible

The “choice architecture” presented to UK savers is pretty basic, it amounts to a series of investment pathways and a little help for people deciding on three options, guaranteed income, non-guaranteed income or cash.

Guaranteed income typically comes with a guarantee that the income will be a defined benefit and that it will last as long as you do (longevity protection). Non guaranteed income does the same – but it won’t have the longevity protection unless you find yourself in a CDC scheme or choose an investment linked annuity (they do exist). These pathways are only an obligation on personal pension providers offering workplace pensions and SIPPs on a non-advised basis

We have been hoping for product innovation – to date we have had none though we live in expectation

In Australia , the requirements are not for investment pathways but for the RIC

… the Retirement Covenant requires RSE licensees, from 1 July 2022 onward, to formulate, record, implement, make available and regularly review a retirement income strategy to assist their members in balancing three key goals in retirement.

These objectives are:
• to maximise expected retirement income over the period of retirement;
• to manage expected risks to income sustainability and stability over the period of retirement;
and
• to have flexible access to expected funds over the period of retirement.

I had the pleasure of reading this excellent submission on the way up to Edinburgh and if you have 50 minutes you can read it too. Please do, it is more insightful than much I am hearing in the halls of the PLSA

Key takeaways

“Super” will only represent around a fifth of a retiring Australian’s retirement wealth. The remaining 80% comes from savings and investments, the state pension (tapering away the more you own) and housing. Those with least in alternative sources of income get the full value of the state pension , the wealthy rely more on Super.

So managing up your state pension entitlement means managing down your rights to an income from Super, which is a problem for the Treasury as it tries to enforce a Retirement Income Covenant promising savers an income from a pot.

This is particularly the case with longevity protection, designed to keep those in later age in funds and not falling back on the state.  If there is a chance that the state will provide , why should Super (this practice of spending down your retirement pot because the state will pick up the slack , used to be known as double dipping – though this phrase seems to be out of the current lexicon.

Chemay is superb on explaining the complex choices not just at retirement but as an individual or a household reviews their retirement affairs over time. Decision making is not “one and done”, but an ongoing burden and a worry.

He is also enlightening on why the various systems of insuring against living too long, have little traction when state insurance pre- exists.

His prose is effective, the submission is not weighed down by tables, the graphs that are used are easy to read and tell the stories of his narrative.

It doesn’t surprise me that he collaborates with Jim Hennington and Arun Muralitharan, both regular contributors to this blog.