Affordable advice needs to feature in retirement overhaul, actuaries say

Andrew Boal, chief executive of Rice Warner and convenor of the Actuaries Institute’s retirement strategy group, has called for a new regulatory regime governing advice that can ensure people can access low-cost guidance on managing savings and retirement.

“We need a regulatory framework that allows for affordable access to information and guidance for the majority of retirees,” Mr Boal said.

“That advice could cost as little as $200-$300. It could be a single issue scaled advice or a modified version of intra-fund advice.

“While the retirement experience is generally quite heterogeneous, there are still a lot of people in quite large cohorts who have very similar circumstances with similar needs in retirement. We should be able to come up with a system to give the people the guidance they need at an affordable price.”

The FPA has benchmarked the time it takes to provide a piece of advice as currently being 26 hours and costing between $3,715 and $6,063.

Face-to-face time with clients is meant to take somewhere between six and 10 hours, with the rest of the 26 hours being occupied by constructing the financial advice document and implementing, along with related compliance burdens.

Mr Boal added that only retirees in the top 5-10 per cent of savers typically “have the level of complexity to justify expensive personal advice”.

Other issues that the Actuaries Institute has called for includes changes to retirement strategies and products, taking into account how they work together, particularly with the effects taper rates and the asset test have on spending and age pension access.

Further, it wants a review of targeted assistance for retirees in need, such as single renters and an assessment of longevity risk products.

Mr Boal has said in an Actuaries Institute dialogue paper that while Australia has one of the best systems for accumulating retirement savings, it struggles with a retirement “spendings system”.

The body has estimated during the next 20 years, more than 60 per cent of superannuation balances at retirement are expected to reach $250,000 or more, while 40 per cent will hit $500,000 in today’s dollars in the next 40 years.

“The system needs to be efficient so that the cost to taxpayers meets its core objectives; it must be affordable and sustainable, and produce adequate outcomes that still allow some flexibility to meet an individual’s needs and be simple enough so that retirees can optimise their position without having to spend a lot of money on advice,” Mr Boal said.

He expects further super industry consolidation, resulting in fewer funds and continued downward pressure on fees.

The sector has already undergone a wave of reduction in investment fees, with operational fees expected to also gradually fall – but Mr Boal said there will be pressure on funds to spend more money on financial information and guidance for members.

“The industry does need to spend a lot more time and money on the future provision of information and guidance, as well as the future retirement income products, which might mean that some of those fees might not fall by as much,” he said.

A Treasury spokesperson confirmed to ifa that the final Retirement Income Review report is due to be given to Treasurer Josh Frydenberg this week, but it remains to be seen when the findings will be revealed to the public.