This paper:
- Identifies two key issues that Gyrostat believes would, if appropriately addressed, progress the development of retirement income products.
- Provides a summary of the retirement income policy development in Australia since 2010.
Key issues:
Limited disclosure of returns relative to risk and liquidity
Consideration of trade-offs between income, flexibility and risk management is required in order to select an appropriate retirement income product. However, these trade-offs are rarely made explicit in product disclosure documents. Few PDSs for retirement products include information about levels of expected income or cash flow in dollar terms, the likelihood of money running out under certain withdrawal or drawdown strategies or the likelihood that income would be lower than expected.
This issue is being progressed through Treasury which issued a “Retirement Income Disclosure Consultation Paper” in December 2018. However, this issue requires greater attention and focus.
Inadequate and inconsistent classifications of financial assets
Investment options are made up of different combinations of asset classes. There are two broad asset classes – growth and defensive. Ideally, these asset classes would assist understanding of risk, return and liquidity in a portfolio. In practice:
- Different funds may treat similar assets, such as unlisted property, differently
- Non-traditional financial assets, which may have vastly different risk return and liquidity characteristics are often lumped together as “alternatives” or “hedge” assets.
