Retirement covenant may fail without advice changes
The Government’s ambitions to implement a Retirement Income Covenant may be destined to founder unless there are significant changes to the financial advice regime.
That is one of the bottom line warnings to the Treasury from major consultancy, Deloitte, which has pointed to the risks and costs of compliance around financial advice being too high for superannuation funds to deliver on the retirement income covenant objective.
In an analysis of the situation, Deloitte declared that “without significant changes to the financial advice regime, Treasury’s goals for the Retirement Income Covenant will struggle to have a material impact”
In doing so, it outlined the thing within the existing advice regime which it believed would need to change.
“The risks and costs of compliance will be too high and there will be many compromises which will reduce the efficiency and effectiveness of the system. For example, funds could opt to have a single retirement strategy on the grounds that the development of cohorts is too risky given the current financial advice regime,” the Deloitte analysis said.
“We consider new laws are needed to cover:
- Expanded use of personal information on benefit statements projecting annual income in retirement (including the Age Pension).
- Collection of additional data to allow funds to provide guidance on appropriate retirement strategies for individual members.
- Collection of data and guidance for retirees on any change in circumstances such as the events we previously listed.
- Compliance requirements for retirement income guidance that are specific to and sufficient for this type of advice.
- Use of technology and delivery of guidance via call centres and web chat functions (including when supported by automated bots and humans). This will be needed to cope with the volume of guidance and advice required for members approaching retirement and for members in retirement.”
“We consider technology has a major role to play in keeping the costs of delivery to acceptable levels. We note the growth of Money Coaches providing advice on budgeting and debt collection using online tools. Similar concepts could be used by superannuation funds once the financial advice laws are amended.”