Advisers may be pressured to provide retiree strategies

The Government has stopped short of imposing retirement solutions stemming from super, although it may place pressure on advisers to address the risks retirees face in the drawdown phase, according to newly appointed chairman of Challenger Retirement Income, Jeremy Cooper.

Speaking at a Challenger retirement incomes forum held in Sydney yesterday, Cooper, the man behind the review of the superannuation system, said that while Australia had a good accumulation system it did not really have a retirement system.

“We’re very good at being in the accumulation phase and we’re still caught up in accumulation type thinking as people drift into retirement,” said Cooper. “A lot of the products we’re seeing in retirement are really still accumulation focused,” he added.

Risks, such as market and inflation risk, must be managed differently in the retirement phase, said Cooper since those in the retirement drawdown phase were doubly impacted by inflation and market risk because their ability to recoup losses was limited. Added to this is longevity risk as people live longer.

Cooper said the Government hadn’t leapt into discussions about the various risks affecting retirees, but it had supported the need for a special strategy that dealt with inflation, market and longevity risk. He said for the super funds that did not have a retirement product or solution, the Government had stopped short of imposing requirements on them. However, he suspected that as part of the Future of Financial Advice reforms, the Government and the standards committee would decide that requirements should be placed on financial advisers to take into account the three risks that impacted most on retirees.

Cooper said that while some may have been averse to this, “ultimately I think it is a massive opportunity for advisers”.

“The rich vein of real value for advisers is in the pre-retirement and retirement space,” he added.

Cooper said that while many believed that equities were a hedge against inflation risk, the global financial crisis revealed this was not the case. The relatively heavy focus on equities in the retirement phase and market failures had placed pressure on advisers, he said, pointing out that while losses early in the accumulation phase were recoverable this was not necessarily the case for those nearing or in retirement.