Welcome to that super show, the podcast where we talk about all things super from the inside. I'm Neil Benson, Chief Product Officer at Chandler cx.

And I'm Sarah Penn, CEO of Mayflower Consulting. Each week we unpack what's changing in the industry, what funds are wrestling with, and how tech and regulation are shaping the landscape.

Sometimes we bring in expert guests, but mostly it's just us having a real conversation about how super is working and what could make it even better.

Let's get into and welcome back to that Super Show. I'm Sarah.

G'. Day. I'm Neil. It's good to be back, Sarah. How are you?

I'm very good.Today we are tackling a topic that's quietly become one of the biggest challenges in super how do you actually measure whether a retirement income solution is working? Treasury released its best practice principles for Superannuation Retirement Income Solutions.That's a sentence on 19th of February, and there's a lot in it about what trustees should be doing. Not that it's legislated, but it's just a good idea. To help us unpack all of this, we are joined by Anthony Saliba.

Thanks, Sarah. Thanks, Neil. Great to be here.

Anthony's a partner in Deloitte's actuarial consulting practice and he's a qualified actuary with more than 15 years in financial services.

Yep. No, thank you. Thank you. And look, I do have to say, any views I share here are my own and not those of Deloitte.But looking forward to the discussion on what is my favorite topic.

So for listeners who haven't read the full treasury document yet, I must admit I scanned it. Give us the two minute version. What are they trying to achieve? Like, what is the point?

Yeah, sure, look, it might take a little longer than two minutes, but I think it's important to understand the history here.In 2022, we had the Retirement Income Covenant come into effect, which is principles based, and it literally sets an obligation for trustees that they formulate a strategy to help their members achieve and balance the three retirement objectives. And, and in theory, that sounds like a great thing to do and received a lot of support and it eventually was legislated and came into effect in 2022.However, since then, we have seen some regulator comments around the speed of implementation and not seeing a step change in the industry when it comes to retirement.And we've seen those comments at conferences, public speeches, but also in the thematic reviews and pulse checks that have come out from the regulators. The Retirement Income Covenant is regulated by both APRA and asic.So we have seen some comments over the years around the speed or lack thereof of implementation. Following that, in late 2024, treasury announced four reforms around retirement specifically and how they will help uplift the retirement space.And one of them was this concept of best practice principles.So the whole idea was that treasury would consult with the industry, which they did last year, and set out a list of principles that would provide more guidance to trustees around how they can support their members in retirement. So a couple of weeks ago those, those best practice principles were finalised.And I should be clear here, treasury has said they are non binding and they're not enforceable, but they do aim to provide the trustee with greater guidance around how to design and deliver fit for purpose retirement income solutions for their members.

Should we be running a tote board on how long it's going to be until government decides they bloody are enforceable because no one's doing anything quick enough? Look, 2028, that's my guess.

Yeah, well, look, as I mentioned, the covenant was always principles based and prior to the covenant, for those that remember there was this thing called the SIPA framework, Comprehensive Income Products for members Retirement. And that wasn't principles based. At least the theory was it wouldn't be. And I think the industry really rallied against that.The industry is in favour of, at least in terms of, you know, what's objectively happened. The covenant was generally received.Well, the industry is in favour of a more principles based approach and letting the market kind of generate solutions. If treasury did want to mandate particular things around retirement, that could have been done already, I think. Let's give it a couple more years.You might be right with your 2028 prediction, but let's see if these best practice principles move the dial and some of the other things as well that are coming through from treasury and from the funds themselves.

Anthony, I'm interested in your sense of industry reaction to these principles. Are they a shock to the industry?Are we like, whoa, we had no idea how to design retirement products until now, thank you very much, treasury, or has it been, you know, very consultative? And these are quite in line with what the industry's already doing, at least leaders in the industry are already doing.

They certainly shouldn't come as a surprise because treasury has been flagging them for a while now. They're not really setting out what an optimal product looks like. So there is actually a fair degree of freedom embedded within the principles.There is a principle around trustee designed retirement income solutions for different cohorts of members And I think that's an interesting one because there has been a lot of talk in the industry about the role of default products, if that's even permissible, and should that be an aim for trustees?So I think that there might be a little bit of surprise there, but I think it'll be interesting to see how trustees take that one on board and how they craft solutions for different cohorts of members.

I was struck reading that principle if I was running a very small super fund, maybe aimed at a young cohort. There's a super fund out there for students, for example. I don't imagine they've got very many retirees in a given year.And now you have to split that base up of people approaching retirement and people in retirement into three or more cohorts and design slightly different retirement income solutions for them. Is it worthwhile every fund doing that if they've got very small numbers of retirees?Sarah and I have been debating this idea of having some trustees specializing in retirement and some in accumulation and having products designed for people in that phase of life.

Yeah, that's a great point. And I don't think you're the only one who's thrown around that idea. The Connexus guys spoke about a licensing regiment around retirement.And so if something like that was to get up, you could imagine a world where you've got accumulation specialists and maybe retirement specialists or round funds. But to answer your question directly, yeah, absolutely. Mileage will vary by fund.And you know, the principals themselves say that there's not a one size fits all solution when it comes to retirement.Trustees have a very careful balance to tread when it comes to things like how much do I invest in in my retirement offering if this is only going to benefit a small proportion of my membership? Does it make sense that I invest millions of dollars in providing that capability?But at the same time, are you letting down those members that are approaching or in retirement? What's the answer for them? So there is a balancing act that needs to take place.

I'm very glad the whole SIPA thing has died. The death. It should have died.I think it's fine to have products as part of the mix, but this idea that everybody has to have a product that they then flogged to everyone was never going to work. So that's a positive. It'll be interesting to see.Maybe some funds, especially the smaller ones, will literally say, this is not the fund for you once you've retired. Our retirement strategy is actually to exit people into a different fund or to help them decide what funds they want to go into.That'd probably be the way to do it, I guess. And yeah, job done.

Yeah.It strikes me that one of the big challenges of people approaching retirement is the complexity of switching from accumulation to an account based pension.Figuring out whether or not they're eligible for the age pension, how much that might be, and then they might have other things going on in their life. They might have a foreign pension or investment properties or other assets outside of super they need to consider.And for those people who could afford and access comprehensive financial advice, that might be okay.Now we're talking about a new class of retirement products, lifetime income products, formerly known as annuities, that retirees just don't seem to be that keen on for lots of reasons.And government is keen to make the system more complicated, harder to navigate, and expecting large super funds to help their members navigate an even more complex system. Do you think that's, is that a fair characterization? Is this new system, is this new set of principles going to make things super and easier?

I think you're right. Adding a new kind of product, building block into the existing system certainly does introduce complexity.However, if you are to acknowledge that we're underserving our retirees when it comes to longevity protection, then, you know, it could be argued that there is a role to play for funds to offer lifetime income products, products that provide some form of longevity protection in addition to what the government provides via the age pension. If you accept that, then I guess we're stuck with a little bit more complexity than we previously had. That's where the challenge is.How can we handle that complexity? How can we make it simpler for members to understand? You're right.If you can afford financial advice, in a way, you're in a great position there because an advisor can talk you through these things and ideally work out the right combination of products and potentially age pension, if you're eligible for any that works for you, and drawdown strategies and asset allocations, all those kinds of questions. However, the big issue is for that unadvised population, what are they to do?Do we throw our hands up in the air and say, well, look, it's all too hard, we'll allow the status quo to continue and you just keep your money in super for starters. Or if you do decide to put it into drawdown phase, it's just an account based pension, you know, you can draw down the minimum or some other default.I don't think that's the right answer as well. So I acknowledge it is, it is complex. But you know, that's, that's part of the challenge that, that we have as an industry to overcome.

And are there any funds you're saying that are really doing a good job at the moment?

There are a lot of funds out there that are touting themselves as, you know, being retirement specialists or leaders in retirement. And oftentimes those funds do have a demographic, you know, shifted that way.And what you'll see from those funds is that they are investing in the digital engagement tools and educational tools. So I think they're acknowledging that not all members will see a financial advisor, at least in the traditional sense.And so they're investing in that kind of intra fund advice that can either be augmented by some form of advisor or can be a self service tool that can provide their members with confidence. I think that's the main thing.How can you provide members with confidence around retirement planning whether they are seeing an advisor or whether they're self serving?

Yeah, confidence is definitely the word of the day, isn't it? When it comes to measuring retirement outcomes, that seems to be what everyone wants to focus on.

It's a good kind of ideal to work towards providing your members with confidence.I guess you just have to be careful around the context in which that word is brought up because for some funds that actually means a financial metric or probabilistic measure. When I use it, I mean it purely in the sense of the emotive piece and providing members with some clarity around their retirement outcomes.

And how does that go for you as an actuary? Do you get points taken off your actuary scorecard for not wanting to look at it purely mathematically?

You know, it's a common misconception, Sarah, that, that actuaries are purely quantitative.But actually the greatest benefit of an actuary is to be able to take the quantitative and to digest that and to communicate it to others who perhaps aren't that way inclined. So that's the area I like to.

Focus the principles ask trustees to measure the effectiveness of their retirement income solutions. We've talked about maybe a survey of members and how confident are they that the they can handle retirement?As one approach, there's nothing prescriptive in the best practices about how they should measure outcomes. What are funds doing today and what do you think they could be doing to provide better measurements?Just to give maybe, maybe even to give the trustee confidence that they've got the right solutions for their members as well?

Yeah, look, that's a tricky one because mileage will certainly vary for each Fund because every membership is different, every. And the principles basically set out that you should be looking at your own membership and tailoring solutions for that membership.However, I think the key point is that you are using objective data to assess the effectiveness of any retirement income solutions that you're constructing.

So no marking your own homework.

The covenant itself sets out that obligation that you know, you should be measuring the effectiveness of your retirement income strategy.I think what these principles do is just, they're trying to enforce some kind of sense of consistency across how that is done and especially when you consider the retirement reporting framework which kind of sits alongside it. But look, when I speak to trustees, I'm always clear about having an evidence based approach to retirement income covenant implementation.So it's not enough to say that you've got this amazing new lifetime income product. Are your members actually taking it up? How are you distributing it and is that effective?And is it improving the, the outcomes of your members in retirement? You know, is it improving their confidence for those members that do want income for life, are you delivering that? You know, those kinds of things?

It's tricky because we all have different objectives in retirement.Some people will want to, you know, if you've read the Bill Perkins book, Die with Zero and my goal is to have an epic retirement and leave behind nothing but, you know, a trail of happy memories and amazing times. Others are like, well, you know, I want to leave a legacy for my, my family and they might want to draw down as little as possible from the super.We all have different requirements and I don't know if funds always know on a member by member basis what that member's objectives are. Not even every member knows what they want their own retirement look like.So I think it's really tricky to say that we've helped that member achieve their objectives. Especially if you've got, you know, millions of members. That's a lot of people with a lot of different dreams you've got to cope with.

That is a fair point. And every fund will have different strategies around how they elicit that information from their membership.It is something that funds are grappling with at the moment.I think a flat income target I think is acknowledged that that's, you know, that's not going to be enough and we need to kind of hyper personalize goals for members. But at the same time I don't think we should just say, you know, look, this is all too hard and if you see an advisor then you're, you're sorted.But if you don't, then you're kind of on your own. I think we can do better than that.

I guess that leads into the whole cohort thing, doesn't it?So in, in a marketing speak, this thing, the cohort of everything being utterly personalized, but if, if the principals require they suggest at least three cohorts, what are funds doing or what would you recommend they do on this front? I guess most people have done some sort of cohorting because you have to do it from member outcomes as it is.How do you make the cohort thing really work for members?

In an ideal world, every member is delivered a hyper personalized experience. Right. That cohort of one, I think that's what you're getting at, right, Sarah? Yeah, yeah.So I think the retirement income covenant actually acknowledges that. That's a big ask.And so trustees are encouraged to subclass or cohort their membership into groups with similar characteristics to make that challenge a bit more digestible for the trustees.What we've seen recently is a lot of, a lot of trustees cohorting on the basis of life stage as a dimension and also wealth or superannuation balance. And that's almost acting as a proxy for age pension expectation.And so in doing that, you kind of get a rough idea of, okay, well, which members would benefit from having some lifetime income or, or what, what would be an appropriate drawdown strategy for this particular cohort of members? And that seems to work pretty well.

Does anyone like doing really sort of heavy duty demographic analysis?Or most realistically, if you have, you know, balance as a proxy for wealth and life stage, is that enough to kind of get you most of the way to where you want to go? What's the, what are you saying?

Yeah, I think more sophisticated funds are not using the superannuation balance as a proxy. They're doing a little bit more there and trying to. Because remember I said that could be used as a proxy for age pension expectation.So you could actually dive a bit deeper there and work out, all right, well, do they have assets outside of super, do they have a spouse, do they own their own home? That kind of thing.So, yeah, some funds are going down that path and trying to improve their, their estimate of how much age, pension, particular members are to receive. This is cohorting or subclassing for covenant purposes.That's all about asking yourself the question, does this particular cohort of members, are they getting a different strategy from another subset of members?If the answer is no, then you probably don't need to cohort them because it's all about Creating distinct strategies for different cohorts of members.Now that's not to say you can't deploy your analytics in, you know, in a million different ways to, to come up with creative engagement strategies within your overarching retirement income strategy. And a lot of funds are still doing that. They're doing the underlying analytics.It just, it just doesn't mean they end up with, you know, 200 different cohorts for the covenant purpose.

Purpose.

So I think that's an important distinction.

Right?

Yeah.

Because the covenant's about. Are you giving them something different that each cohort should actually look.

Yeah. Are you devising a unique retirement income strategy to help those members achieve and balance their objectives?So oftentimes we'll see a large, you might call it a crude subclass that covers a whole bunch of members because they fall within a particular age group and they have a certain balance. But even within, within that group there might be variations.For instance, we know some members have an advisor and so our, we're going to tailor our strategy a little bit for those members that already have a relationship with a financial advisor.

Yeah.

It's funny you touched on a minute ago, you know, home ownership and whether or not you're, you have a partner because those two things make the biggest difference to the amount of age pension that you get. And really your and for most people therefore your standard of living in retirement still.But they're not things that the super fund has access to unless they go and ask each member individually. It's certainly an area that I would like to see change.And super funds having access to more of that sort of data so that they can deliver on this more effectively by having just those extra couple of pieces of data.

That's so topical.A lot of funds are grappling with that issue because not only is that important to work out age pension expectation, but we know the largest, the largest reason for a lump sum withdrawal at the point of retirement is to pay off some mortgage.

Yeah.

It's oftentimes to pay off whatever mortgage is, is remaining. And we know retirees are retiring with larger and larger mortgages. If only funds could get access to that data.I think some funds are doing some clever things around that.For instance, if you're offering a comprehensive retirement income calculator that is member authenticated, so you already know a whole bunch of information about your member in terms of super balance and insurance premiums, so you could pre populate that information. Then you're providing a useful tool to your members that can not only give them some support around retirement planning and improve their confidence.But, but it's also capturing information about them as well. So the more information they disclose, the more accurate that is. So it's a little bit of give and take.So I think rather than, you know, kind of adding that friction point of effectively surveying all your members and asking them pretty please give us this data, it's actually a bit of give and take. So hey, look, we've got this awesome tool that can help you with planning for retirement.However, to make it as effective as possible, we're going to need a bit more information about you.

So I went through a journey like that with one of my super funds and I think it'd be great if they could capture that information, hold onto it and you know, way before retirement is to use it in their communications and member education.So instead of just at random throwing me an invitation to a webinar about the first home super saver scheme and then throwing me an invitation to a planning for retirement webinar, if, if they have, you know, take me through a journey like that and captured that information and for the next 20 or 30 years they can market to me more appropriately.You know, you're in your 30s, if you thought about additional contributions, you're in your 40s, if you thought about doing this, you're in your fift.If you thought about downsizer contributions, just those member communications, more life stage appropriate and then straight into the retirement planning.Because they know how much I'm likely to have on my mortgage, they know I'm married, they know my health is looking good and my plans for retirement, what age I hope to retire.But the tools that capture that data today, my gut feel is they sit in a silo and they're not part of the core registry, they're not part of the organization's data lake or data warehouse, and certainly not part of any marketing that is sent to me later on. They just sit in a little bit planning tool.

Well, funnily enough, a big kind of the reason why they don't send you marketing with that stuff is the test for personal advice is does the member think that you are telling them something based on personal information you hold about them?And basically, and so if, if they send you something saying, you know, we've noticed, Neil, that you haven't paid off your house yet and you're 75 or whatever. So would you like to come to a webinar on, you know, using lump sums to pay off your mortgage?If you from that marketing, you then take the lump Sum out pay off your mortgage and it all goes horribly badly. The fund is running a risk that they will get be sued by ASIC for giving personal advice.So at the moment that is the core reason why they don't use any of the information they have to do any better marketing because they're all horribly worried and understandably they'll run afoul of the personal advice laws. So that's the other thing that is really needed to make make this stuff fly which is the second part of the the DBFO and the nudging stuff.Please God, please can that come.

Superannuation prompts should help with all of that. But like you say Sarah, we need the guidance around those rules and what is permissible.

Yeah.

So that funds don't fall foul of things like the anti hawking laws.

Yeah. Because they really want to do better.And I tell you what, they have marketing teams who are champing at the bit to get out there and do this stuff and every time they try they get whacked over the head from compliance. He says guys, do you not understand we can't do it.

So it's a really perverse set of incentives. We're making the system more complex and our hands are tied from providing tools that guide people through the complexity.Come on treasury, less best practices, more DBA photons too please.

Well it's all stuck with Molino at the moment who's looking at whether or not we really need a lower class of advisors given the mess from SHIELD and First Guardian. But hopefully you can just put that bit to the side and sort the rest of it.

One of the sections in the Best practices is around drawdown pathways and how these should be encouraging members to maybe look to draw down a little bit more than the legislative minimums that are age based today. And again that might come down to knowing that the members other assets outside of super their age pension entitlement.What are you thinking in that area Anthony?

Yeah, there has been a lot of talk in the industry about drawdown patterns and how a lot of members are drawing down the legislative minimums.Although I will say that there have also been some publications, some recent research that that states oftentimes that is intentional or actually a lot of members seem to draw down a little bit more. So you know, and that's why I would encourage every fund to look at their own membership and what their members are doing.But often oftentimes members are drawing down the minimum because if you think about an age pension application form you've got there's A section in the form where you need to determine how much you should be drawing down from your account based pension. And usually it's just a, it's a blank box, right? And a retiree probably isn't sure how much should be drawn down.Underneath that box there's a checkbox that says the legislated minimum. Or maybe it's a default that a fund offers. And so for that reason, if you are unsure, then drawing down the minimum probably makes sense.And you know that you've always got that backstop of, you know, I can always take out a lump sum if I need more for whatever reason. Okay, so that's been the pattern.Now the fear is that a lot of retirees are doing that and they, they'll withdraw the minimum because of that lack of confidence effectively. And so they could be living more frugally than they otherwise would.And so how can the industry provide those retirees with more confidence to draw down more so that they know no matter what happens in the future with investment performance or indeed their own longevity or mortality, that they'll be fine? This concept of trustee design solutions should in theory help with that.So for instance, if you know that some members are going to receive age pension, well, based on how much age pension they're receiving, do they need additional longevity protection via a lifetime income product? If not, is it just an account based pension? And how much can they comfortably draw down from their account based pension and how long will that last?You know, all of those things need to be communicated to a member such that they feel confident in whatever approach they take.I think at the moment one of the main criticisms of drawing down at the minimum rate is you end up with this very funny drawdown pattern where you're actually drawing down a very small amount in your early years of retirement and it tends to peak around age 90 or 95.And that kind of goes the other way around when, when you, when you think of retirement from an active retirement and a passive retirement on top of that, you've got a lot of retirees that are slowly more and more eligible for age pension. So their age pension is increasing as well. So I think there is an argument to be made for greater consumption in the earlier phases of retirement.But that needs to be done in a sustainable way and it needs to be done in a way that that member that members are confident with.And I guess that's, that's a, that's a challenge for the industry as well because you can, you can devise a product that says or a Retirement income solution, I should say being a combination of products and the age pension, you could derive one of these things that says okay, we're going to give you 75% account based pension and 25% lifetime income.But what are the assumptions around drawdowns that you're making in that trustee design solution and are you actually able to deliver those drawdown patterns or are you leaving it up to the, the, the member to, to come up with that themselves and dynamically change their drawdowns year on year, which we know doesn't often happen.

No.So do you think we need the, we need the government to actually, rather than having it start at 4 and end at 16, I think is the drawdown rate, it should be sort of going the other way. I mean we've had, we've had those drawdown. That drawdown pattern's been around for a very long time. Maybe that needs looking at as well.Just to add to the list of things.

I'm not, not going to go down that, that rabbit hole. But, but, but look, I think, I think the reasons behind why that exists make sense. You certainly want, you know, you're super.To be consumed for retirement income purposes. It's just that if our industry choice architecture is nudging people into suboptimal outcomes, then then maybe we should be looking at that.And, and I think trustees have a, have a role to play. We shouldn't always just blame the government for, for some of the behaviors we're seeing.

I think there's been quite a lot of lobbying that it should be reversed and people should be encouraged to draw down more early retirement, the cruise lines and the caravan associations.

If that happened, that doesn't necessarily mean that the funds need to be spent. So I think, I mean just thinking through that idea that the money would just end up in bank accounts but it potentially, you know, being taxed.So yeah, there'd be lots of things to work through.

It is this thing, isn't it? When people talk around now the government's making me take my super and it's like, well, but the government's not taking your Super.The point is you now have that cash and you can do whatever you like with it. You can, in some cases you can stick it back in super, you can invest it in something else. You can, you know, go on a cruise. You can just.

That's right.

It's for your consumption. It's not actually for someone else to consume. It's sort of an odd, odd way that gets spoken about.Like if you have to take it out of super that you personally don't get it anymore.

Anthony, we talked before on the show, I didn't see anything mentioned in the best practice principles coming out from treasury around two big inactions a lot of people fail to make as they approach retirement.One is to convert their accumulation account into an account based pension even though they have stopped working, therefore they're paying more tax on that account than they could do. And the second one is delaying their claim for age pension by year two and not claiming on the day that they become eligible.And for people with low balances or know other source of income that that's tens of thousands of dollars a year they're missing out on if they delay that action. Nothing in here about helping members, you know, take those two actions.

Yeah, I actually think on your, on your first point around conversion from accumulation to drawdown, a lot of funds have been talking about this lately and are trying to capture data around their own membership to, you know, ensure that as many members as possible are converting to drawdown. I believe that's actually captured in the retirement reporting framework. So that's, that's separate to the principles.So that'll be interesting to see once that's published by apra how the various funds are performing on that particular metric. But the point around age pension, absolutely, that's huge.We hear so many times that there are retirees that apply for the age pension, you know, a couple of years later than they could have. And that is a real shame.What I'd love to see is, and I think some funds have mentioned this as well, giving the funds a little bit more control or ability to apply for the age pension on their members behalf and so that they can not only capture the data they need to perform that application process and see it to completion, but also to get the age pension in the retiree's hands as soon as possible.

I mean that really would make such a big difference to people.

Yeah, yeah, I think.

Was it Debbie Blakey from Hester was saying that, you know, of all the things they can possibly do because the people in Hester don't generally have large account balances.If they could get people to get their age pension the minute that they are eligible for it rather than three years later, that would make more difference to the retirement outcome for those people than anything that Hester could do under any circumstances, any or which way. There's just nothing else that makes as much of a difference as getting them onto the age pension at a decent.

I understand the argument for sure.

Yeah, decent time frame. Actually, while we've been talking, I thought for my own entertainment purposes, I would download the age pension form. It's 26 pages, so. Yeah.And I have heard actually that making an insurance claim is difficult, but applying for the age pension puts all of it in the shade in terms of how tricky it is to actually get everything right, get the paperwork done to get the age pension.

So, yeah, I've heard similar.

Yeah, super funds being experts at paperwork, because that's most of what it is, could presumably do a much better job.

A big elephant in the room, Anthony, and you're an actress who you probably know this better than anybody else, is the complexities around annuities. So if I think of the actuarial profession, I always think of annuities. They're not as popular as I think they could be, should be.There are some new modern annuities from providers who specialize in nothing else and I think they're quite attractive. They take away some of the dis benefits that perceive of annuities.Like what happens if I pass away after a couple of years of taking out an annuity and all that money I paid up front gets swallowed. Do you see more innovation in that product development space coming?And do you think we'll ever get over the resistance a lot of people have to taking out annuity. Are they going to have an important place in retirement?

Yeah, it's a tough one because you're right, the take up of such products has been low historically, at least over the last year, 20 years or so. Now you've got annuities, you've got lifetime income streams, you've got innovative retirement income streams.It is important to be using the right language around these things because different words mean different things and different products provide different levels of longevity protection.I think if you take it back to the obligation that trustees have in the covenant, it is, you know, to help their members achieve and balance those those three objectives.As a trustee, if you have a way to measure these solutions that you craft for your members against each of those individual objectives, this is me putting my actuarial hat on. I think that there is a great argument for lifetime income streams.I'll use that kind of generic term because they do have the potential to provide risk management when it comes to the sustainability and stability of income. How can that be communicated better? I think that that's the key question.I think historically these products have been sold in isolation as an individual product.And that's why you might remember years ago there was those Variable annuity products and they had elements of account based pensions and lifetime income streams. And there was even one that had payments linked to the RBA cash rate. I remember seeing one of those.So all these whiz bang features, however, take a step back and we actually think about a retirement income solution as a combination of product building blocks and we communicate the retirement income solution in that way, then I think we should see less resistance to annuities as a, as a kind of product off to the side, but rather it just forms one part of my overall retirement income solution. And it may work for some people, it may and it will not work for other people.It should be up to the retiree at the end of the day to decide what their composition is. But that doesn't mean the trustee can't design an overall retirement income solution that they think, you know, would work pretty well.So I think that that'll be the key to overcoming the resistance. In recent times, you're right, we've seen some new products being developed.However, I don't think the popularity of those products is, is necessarily linked to, you know, innovative things around drawdown patterns and the like. I think it's more so to do with age, pension entitlements. And there are some new products that you can actually opt to take out during accumulation.And if you do, you can get a potentially large Social Security benefit.And so those products seem to be quite popular, at least in terms of, you know, ticking the box in accumulation and saying, yes, I'll take this out so that I've got my option at the point when I reach my condition of release. We still have to see what happens at that point of conversion. And, and will the decumulation version of these products, will they be successful?Now if, if you have the engagement tools to properly articulate the benefit that you're providing members, then you know, I would expect conversion to be higher than what we've seen historically because you know, in some cases the, the benefits are quite lucrative. Tying back to what we were saying earlier about the age pension.Imagine if a fund could apply for the age pension and actually deliver that in conjunction with a dynamically drawn down account based pension and any lifetime income stream. And of course there are so many things to get through to be at that state where we can do that as an industry.But I think that there's great potential in the benefits that a model like that could bring.

Well, I've got one more. Anthony, let me run this scenario fast to you.And I don't know how widespread this is, I think it's, it's probably fairly rare, but it's possible today that as I approach retirement I draw down my super as a lump sum to, let's say I've got a million dollars in super and I take out more than half a million dollars, a decent amount and I upgrade my family home, go from a nice three bedroom house, I buy a five bedroom house somewhere on the beach and I know I qualify for the age pension because that asset is not counted towards the asset test.And we end up as a society paying age pension to people who are asset rich and income poorer, at least asset from a primary place of residence point of view. And we spend $40,000 a year paying age pension to those people who it probably wasn't designed for.Do you think that's widespread, that people are withdrawing their server? We talked about withdrawing from super to pay off any remaining mortgage.But for those people who have no mortgage, are they using it to upsize family homes in order to claim age pension?

I haven't heard much about that, Neil.I have heard of just anecdotally cases of maybe upgrading a bathroom or kitchen or something like that, but I think you touch on a broader challenge which is, I guess it's a government problem. How can we deal with the case of those retirees who are extremely asset rich but, but cash poor.And I know the Actuaries Institute has put out some research around, you know, what are some things we can do to the assets test and things like that to perhaps introduce more equity into the system. But of course anything needs to be done in a very careful way to ensure there aren't second and third order consequences to people.There are a lot of retirees who are reliant on the age pension and, and so we do need to be careful with that. I do think there is a role for equity release products to play in this space. Yeah.Because you know, if you do have a large asset base stored up in the equity of your home, I'm sure a lot of people would like to consume that in some way.

Well that's a relief to hear because whenever I enter that discussion I get accused of trying to throw 90 year old widows out of their homes.But yeah, equity has got an important part to play there to make sure they have an income that maybe doesn't need to be government funded, taxpayer funded. Is there anything else we haven't covered today in the best practice principles or in your recent work that you'd like to cover?

I think we've touched on a lot of points today.I think one thing I will say is if you are a trustee looking at these best practice principles, always keep two things in mind and one is that whenever you're measuring something, always just take an evidence based approach to that. I feel as though. And that applies to the covenant in general when it comes to your retirement income strategy and how you're implementing that.As long as you're taking an objective approach to how you look at your membership and their needs and also the retirement income solutions that you're crafting to them, then I think that'll be viewed quite favourably by the regulators.And also make sure when you are looking at trustee design solutions that you're looking at how the individual objectives of the covenant are being fulfilled by that solution.I think it's perhaps a common misconception that the trustee needs to provide 100% of everything to the member, like 100% maximizing income, 100% managing risk and 100% providing flexible access to capital. Whereas in. In reality, I think the beauty of the covenant is it acknowledges that there is a trade off that needs to be made.So the challenge for the trustees is is how can they come up with solutions that carefully communicate that trade off so retirees can get what they need ultimately.

Thanks Anthony. That was really interesting stuff I'd love to get my head around. Like Sarah said, I think I'm going to have a light on.And if anybody likes to find this episode as interesting and insightful as we did, I hope you share it with your retirement team within your fund. Lots to think about as we grapple with these best practices. Anthony, thanks so much.

It was my pleasure. Thanks for having me. Cheers.

Thanks from me too, Anthony. And that's it for this episode of that super show.If you would like to hear more from us in between times, please sign up to our newsletter called the ssfpp, the Secret Society Society of Finserve Product People. We'll give you updates on when the show's coming out and what's going to be in it.You can find that on the Mayflower website and don't forget to follow Neil and I on LinkedIn. Thanks for listening and we'll see you next time on that super show.

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