More Age Pension and an income for life – how new solutions are changing the retirement game

Innovative retirement income streams are keeping clients coming back for a lifetime.

Adviser retirement strategies have traditionally been dominated by account-based pensions (ABPs) and sometimes lifetime annuities.

But there’s a new player in town, and it’s changing the game.

Savvy advisers are rapidly adopting innovative retirement income streams (IRIS) – a new type of retirement income solution that can improve Age Pension outcomes and deliver an income for life.

So, what’s the download?
 

Retirement angst prompts Government intervention

For many pre-and early retirees, Fear of Running Out (FORO) is a major anxiety. After a lifetime of work where the income cell on the budget spreadsheet was always filling and refilling, funding an enjoyable retirement from a single, soon-to-dwindle pile of money looms as a mathematical challenge and an emotional rollercoaster.

This fear is heightened when the growing cost of living eats away at their lifetime savings.

The Government has developed a new category of retirement solution, IRIS, and granted concessional means test discounts to deliver:

• the potential for higher rates of income¹ for life
• the comfort that retirees would never run out of income²
• the confidence to spend more of their superannuation savings
• more flexibility than traditional lifetime income products such as allocated pensions and annuities.
   

4 ways IRIS can benefit you and your clients³

• Deliver a market-linked income stream that pays income for life.
• Possibility to optimise Age Pension entitlements.
• Some allow access to a full platform of investment options, allowing advisers to tailor client portfolios in line with their investment philosophy and risk profiles.
• Develop new strategies by using deferral options and drawdown flexibility to provide improved outcomes for a broader range of clients.

_{¹Compared to typical account-based pension income rates.
²In return for an income that never runs out, account holders will leave some of their balance when they die or exit.
³In exchange for these benefits, full capital access is restricted meaning that some clients will leave some of their balance when they exit or die.}
 

The allure of Age Pension: an adviser experience

The Age Pension benefits of IRIS are particularly compelling. Under the assets test just 60% of the purchase amount is assessable until age 84, at which point it drops to 30%. And only 60% of a person’s actual income from an IRIS counts towards the income test, with a nil income test applying if income is deferred (even if lump sums are withdrawn).

Justin Hyland, principal of Sydney-based Hyland Financial Planning⁴, has had success using MyNorth Lifetime, an IRIS solution, and says the Age Pension benefits have been well received by clients.

“We know that for retired clients, the ability to access the Age Pension not only matters to them psychologically, but it can also make a significant difference to the longevity of their funds”, he says.

Justin adds that the results have also helped his practice demonstrate the value of their advice.

“Our clients need to understand the value we are delivering. North has made this easy as clients can see the financial benefits. Among some clients, eligibility for the Age Pension is being significantly brought forward – often from their 80s to their 70s, and the compounded uplift in age pension payments can be worth over $100,000.”
 

Helping you engage with your clients earlier

An IRIS may also help advisers engage with new, younger clients by getting them thinking about retirement earlier.

Justin says family referrals are helping to attract a younger demographic of clients. “We know older clients recommend us to their adult children. This can be the start of conversations with younger clients around preparing for retirement.”

AMP Director, Retirement, Ben Hillier points to the MyNorth Lifetime Super account as a “powerful tool” that can be used at any time to age 65 and operates just like any other super account with standard contribution caps.

“Advisers can have a retirement conversation with clients much earlier, and with greater impact. This puts advisers in the driver’s seat heading into, and all the way through retirement as clients transition to a MyNorth Lifetime Income account,” he says.

“We are seeing MyNorth Lifetime Income account members spend 50% more than they used to – and this uplift is being driven by three separate factors. First, MyNorth Lifetime pays income rates that are significantly higher than account-based pension minimums. Second, the strategy enables increased access to the Age Pension. Thirdly, our Lifetime members have increased their drawdown from their remaining account-based pension, because they’ve overcome the fear of running out and feel confident to start spending more freely” Ben says.