Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 117

Retirement income products - what's ideal?

For years, the superannuation industry has grappled with how to offer members simple, attractive and affordable solutions together with longevity protection. Certain tax and legislative barriers have made it difficult for some products to be introduced.

The Financial System Inquiry recommended that superannuation trustees should pre-select a Comprehensive Income Product for members’ Retirement (CIPR). It suggested that these CIPRs should have certain features including a regular and stable income stream, longevity risk management and flexibility. Before designing a product (or products) for Australian retirees, are there lessons we can learn from overseas practice?

The following table summarises the requirements for retirement income products in eight of the top ten countries from the 2014 Melbourne Mercer Global Pension Index. The two countries excluded are Australia and the United Kingdom, which from April 2015 removed the previous requirement to use at least 75% of retirement funds to purchase a lifetime annuity. Their system is now similar to Australia with no requirements (i.e. total freedom).

It is clear that most of these systems have a lifetime income focus with a concentration on lifetime or long-term annuities. Generally, there is a collective approach which means those who live longer receive greater benefits than those who die earlier. This is in contrast to the Australian norm where superannuation assets are often considered to be ‘owned’ by the individual for their sole benefit.

The income requirements only apply for benefits above a certain level in Singapore and do not apply when the benefits exceed the prescribed maximum in Chile or Singapore. Both approaches make sense as there is little value to be gained in requiring annuities for small benefits and once a reasonable income level has been attained, the Government may have little interest in how the balance of the benefit is used.

The retirement trilemma of what retirees want

The development of the best retirement product is not straightforward; indeed, the post-retirement years are much more complex than the pre-retirement years, when many individuals continue to receive a steady income.

In short, most retirees seek:

  • Access to some capital, both during retirement for those unexpected and significant capital expenditures, and after retirement as a bequest
  • Protection from risks, which can include inflation risks (after all, they remember the 1970s), market risk (as they have seen many market downturns) and longevity risk as they become increasingly aware of increasing life expectancies
  • Good returns from their investments, often in an account-based pension, which also provides flexibility

However the ‘best’ product which responds to these divergent needs is not the same solution for every individual. It will depend on the individual’s investment risk profile, health condition as well as their family and housing situation. Furthermore the best solution is likely to change during their retirement years as they pass through various phases of retirement.

A single lifetime annuity is unlikely to be the best solution notwithstanding the requirement in many pension systems. Retirees are now seeking more flexibility than provided by a single lifetime annuity. Whilst an annuity provides longevity protection it does not provide access to capital and investment choice. A combination of products or a single flexible product with several features is more likely to respond to the needs of retirees.

Pooling of risk is big difference between Australia and other countries

We need to move away from products that are solely focused on the individual; some risks are better managed when shared. There is an urgent need to find a better balance between the individual orientation of a defined contribution plan and a collective (or pooled) approach where there is some sharing of risks within and between generations.

The most obvious area to pool risks is in respect of longevity risk. Whilst annuities represent one form of such pooling, the Financial System Inquiry showed that other forms of pooling (such as through group-self annuities which require no capital) can deliver significantly higher retirement incomes while also reducing the risk of outliving retirement savings.

If, or indeed when, CIPRs are introduced into Australia’s superannuation landscape, the key to success has to be a definition that enables a wide range of solutions to be available, including a general acceptance that the pooling of risks will normally provide a more efficient outcome.


Dr David Knox is Senior Partner at Mercer. See


SMSF Trustee
November 02, 2016

My taxes have NOT paid for a pension. They have paid for schools, for defence, for my parents' generation of pensions, but have not been a contribution to any sort of accumulation fund to provide me a pension. There's another discussion on Cuffelinks at the moment about this.
So, although the strategy you recommend, Carmen, might have merit, it cannot and should not be based upon any sense of being 'entitled' to the aged pension because its my money. It isn't.

November 02, 2016

Self funded retirees are being dudded. Spend your super fund money for those years you went without, and when the funds run out, seek the pension that your taxes over the years paid for. Also the women that are double dipping in respect to maternity leave should only have kids if they can afford them. Don't leave it to the taxpayers to look after your family. If you can't afford them don't bring them into the world for others to look after.

David Knox
July 13, 2015

Thanks for all your comments.

I agree with many of your comments. Risk pooling is part of our lives and we even have it within super known as group life insurance. There is no reason why we should not have it in the retirement years when the biggest uncertainty is the length of our life.

A longevity pool can operate independently from investments but it is harder to explain to retirees and advisers, especially when there is a negative return.

It's also worth noting that the government has contributed to our super through tax concessions and therefore have a say in the design of the overall system.

Finally, a longevity pool only needs to be part of the overall investment strategy.

As super balances increase in size and the government cuts back further, longevity protection will become more important.

Greg Einfeld
July 13, 2015

There is certainly a place for pooling of longevity risk. However the current solutions available don't cut it.

Firstly - the pool should share in the risk as opposed to a life insurance company taking the risk. If a life company takes the risk then we will never know if they have enough capital to withstand significant mortality improvements.

Secondly - the longevity risk should be de-coupled from the way money is invested. One should be able to buy into the longevity pool with the outcome linked to a choice of investment indices such as the ASX 200 index and the Australian government bond index. This gives retirees the ability to invest money they way they want to such as a low cost ETF.

Thirdly - retirees should be able to select the longevity profile they want such as a deferred annuity style, spouse reversion, expected indexation rate.

The question then arises - who will run the longevity pool? Would it be government or a life company? It it is run by government then it won't be promoted properly (unless it is compulsory). If it is run by a life company then sadly it will be too expensive.

David Lunn
July 12, 2015

Pooled risk products are very unpopular and mandated annuities are not in accordance with policies of choice and taking respondibility which has been a tenant of recent policy decisions. The only mechanism that would have much chance would be one two options. Firstly all future SGC must be annuitised but sal sac and NCC can be discretionary or reduce tax attractiveness of AP pensions vs annuitised retirement solutions and ppl choose.

Doug Coates
July 10, 2015

The statement “. . . where superannuation assets are often considered to be ‘owned’ by the individual. . .” dismays me. Through the last 20 of my working years I created and maintained a retirement savings plan which combined my superannuation, and any additional contributions and some non-superannuation investments that I could afford, annually foregoing any spending that might compromise that plan in order to provide for myself and my family after retirement. I paid a lot of income tax through those years and assumed that some of it went towards a pension but, due to taking responsibility for my retirement income and assets I am now not eligible for any pension nor any concessions other than a $2,50 daily bus ticket that I occasionally use. I manage my income, assets and spending now as carefully as I did through my saving years and I know several people who were in similar circumstances to me but saved the minimum, spent a lot and now receive a pension (that I contributed towards). I certainly consider my superannuation assets to be owned by me and I justifiably intend to spend them for my own benefit.

July 10, 2015

Matthew and Bruce - you both make excellent points. We willingly participate in insurance pools to protect our cars, homes and livelihoods. For those of us that don't claim, we are happily paying into pools that fund the repairs or losses sustained by others, content to run the risk of never benefiting ourselves.

However when it comes to our hard-earned retirement savings, the fear of immediate 'loss' - giving up part of those savings to others - overcomes the looming spectre of being poorer in later years.

It is hard to see this dynamic changing absent legislation or other compelling incentives.

July 10, 2015


As a statement of general principle, Australians are simply not comfortable with the concept that the person sitting next to them at work may end up receiving part of their superannuation because they may have better genes.

Granted, some form of risk pooling is going to be a requirement of future retirement incomes policy, but it is going to have to be a modest component of ones overall retirement savings, and there will need to be some fairly serious incentives put in place around the other components of the policy to make it palatable to the average person.

Greg G
July 10, 2015

I have never understood the need for retirement “product” - but I do recognise the need for product providers to create a perceived need for a product to sell.

Bruce Gregor
July 10, 2015

My grandchildrens' parents and their Gen Y cohort are happily recycling toys and clothes as their children grow. It would be nice to see baby boomers come to grips with recycling part of their super amongst longer living members of their cohort through the most efficient mechanism - a lifetime or deferred annuity without withdrawal or bequest option. I admit this is a stretch to expect right now but CRIP and products like Mercer has are baby steps in what needs to be seen as a longer term journey we need to make.


Leave a Comment:



The comprehensive income product for retirement

Overcoming loss aversion in retirement income

Five challenges for post-retirement products


Most viewed in recent weeks

How to enjoy your retirement

Amid thousands of comments, tips include developing interests to keep occupied, planning in advance to have enough money, staying connected with friends and communities ... should you defer retirement or just do it?

Results from our retirement experiences survey

Retirement is a good experience if you plan for it and manage your time, but freedom from money worries is key. Many retirees enjoy managing their money but SMSFs are not for everyone. Each retirement is different.

A tonic for turbulent times: my nine tips for investing

Investing is often portrayed as unapproachably complex. Can it be distilled into nine tips? An economist with 35 years of experience through numerous market cycles and events has given it a shot.

Rival standard for savings and incomes in retirement

A new standard argues the majority of Australians will never achieve the ASFA 'comfortable' level of retirement savings and it amounts to 'fearmongering' by vested interests. If comfortable is aspirational, so be it.

Dalio v Marks is common sense v uncommon sense

Billionaire fund manager standoff: Ray Dalio thinks investing is common sense and markets are simple, while Howard Marks says complex and convoluted 'second-level' thinking is needed for superior returns.

Fear is good if you are not part of the herd

If you feel fear when the market loses its head, you become part of the herd. Develop habits to embrace the fear. Identify the cause, decide if you need to take action and own the result without looking back. 

Latest Updates


The paradox of investment cycles

Now we're captivated by inflation and higher rates but only a year ago, investors were certain of the supremacy of US companies, the benign nature of inflation and the remoteness of tighter monetary policy.


Reporting Season will show cost control and pricing power

Companies have been slow to update guidance and we have yet to see the impact of inflation expectations in earnings and outlooks. Companies need to insulate costs from inflation while enjoying an uptick in revenue.


The early signals for August company earnings

Weaker share prices may have already discounted some bad news, but cost inflation is creating wide divergences inside and across sectors. Early results show some companies are strong enough to resist sector falls.


The compelling 20-year flight of SYD into private hands

In 2002, the share price of the company that became Sydney Airport (SYD) hit 80 cents from the $2 IPO price. After 20 years of astute investment driving revenue increases, it sold to private hands for $8.75 in 2022.

Investment strategies

Ethical investing responding to some short-term challenges

There are significant differences in the sector weightings of an ethical fund versus an index, and while this has caused some short-term headwinds recently, the tailwinds are expected to blow over the long term.

Investment strategies

If you are new to investing, avoid these 10 common mistakes

Many new investors make common mistakes while learning about markets. Losses are inevitable. Newbies should read more and develop a long-term focus while avoiding big mistakes and not aiming to be brilliant.

Investment strategies

RMBS today: rising rate-linked income with capital preservation

Lenders use Residential Mortgage-Backed Securities to finance mortgages and RMBS are available to retail investors through fund structures. They come with many layers of protection beyond movements in house prices. 



© 2022 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.