QSuper's Head of Product and Services Ben Hillier shares the reasons and research behind QSuper’s innovative, new Lifetime Pension that gives retirees confidence they will have income that won’t run out.
One of the key concerns retirees have is that they will outlive their savings1 . To help mitigate this concern, QSuper has launched a new retirement product that offers an income for life.
QSuper's Head of Product and Services Ben Hillier says the development of the Lifetime Pension offers confidence for retirees and answers many questions that financial advisers are asked as well as many of the questions that should be asked.
Q: What inspired QSuper to create this product?
BH: The thing that really piqued my curiosity early on was doing some analysis and finding out how much money super fund members were leaving on the table when they passed away. It was realising just how many people took the minimum from account-based pensions and were then leaving quite substantial balances, close to 100% of their starting balance. There were plenty of people who had grown their balances substantially, and there was a lot of people who had run out of money. It’s a wicked problem that’s impossible to solve yourself, to efficiently spend that money on yourself. And so you spend conservatively and you invest conservatively and then leave behind a substantial amount.
Q: Were people concerned they were leaving so much money behind?
BH: People weren’t really articulating this as a concern. But that’s because people didn’t know how much better it could be. I’ve spoken to well over 2,000 members over a number of years in researching and preparing this product. The inefficient use of capital wasn’t being perceived as a problem, but that’s not to say you can’t educate people that there’s a much better way.
Q: What did you find retirees are worried about?
BH: In going through the research, we uncovered quite nuanced concerns. Most people aren’t worried about longevity in a strict sense of living to a very old age. That’s not a risk that people think applies to them. Yet, conversely, they are afraid of running out of money. Their fears aren’t because they may live too long, it’s because they may spend too much or the market returns aren’t good enough. Many people are afraid of running out of money even though they don’t necessarily think they are going to live a long time. As a result, they are living on less than they need to2. An example is that at QSuper about half of our eligible members take the minimum payments for super income streams. Of those, about 75% took reduced minimums when temporary reduction in drawdown rates were offered by the Australian Government during the global financial crisis and more recently in response to COVID-19.
Q: How does Lifetime Pension create better retirement outcomes for Australians?
BH: The main purpose of QSuper’s Lifetime Pension is our aim to pay people a higher income with less risk. It’s for people to have the confidence to actually spend that amount of money they need and feel comfortable that the money is not going to run out.
Q: Is there anything in the world similar to this product?
BH: Other people have been working on similar things to address this issue in Australia and internationally. The real lightbulb moment for us came when we learned about a product in Canada from the University of British Columbia called the Variable Payment Lifetime Annuity. It’s not the same as what we’ve got, but the annual indexation adjustment process where we transparently and simplistically adjust incomes based on the performance of the core option on an annual basis is what we borrowed from them. There’s a real temptation to try to solve for too much, but that creates risk. The one in Canada is devilishly simply, it’s transparent, it means your income goes up and it goes down, but it is always 100% funded.
Q: What does this Lifetime Pension mean for financial advisers?
BH: QSuper’s Lifetime Pension can be a solution to many questions advisers are asked and also the questions that need to be asked. These are financial questions, but they are also behavioural ones that you may not really ask of a client now because there’s no solution. This means we’re currently not focussing on some really important questions. It’s about doing more than ensuring the objective that someone doesn’t run out of money is met. Now we can ask, ‘Is that the best they can do?’ There’s also the opportunity to raise and find solutions for questions such as, ‘How do I deal with cognitive decline?,’ ‘How do I stop my clients switching to cash at the worst possible time?’ and ‘How do I protect them from a spendthrift spouse or child who is going to have future power of attorney over their finances?’ We have a solution that means these questions can be asked and it may give people more confidence and more money for life.
Q: Do you have any examples of how the Lifetime Pension has benefited Australians?
BH: One of the first people to start a Lifetime Pension is a great example. This member jumped on our website straight after attending a QSuper retirement seminar and applied for a Lifetime Pension the next day. His income went up from $45,000 to $65,000 overnight. He gets higher income from a product plus a big boost to his Age Pension. He says that he is financially happier, and hopefully he’s now got the confidence to draw above the minimum from his account-based pension and do even better than that. Obviously, this was the right decision for this member, but everyone’s circumstances are unique and we recommend reading the Product Disclosure Statement before making an investment decision.
QSuper is open to the public so all clients on becoming a QSuper member can acquire QSuper Lifetime Pension.
Find out more about QSuper’s Lifetime Pension here
1 National Seniors Australia, 2020. “Retirement income worry. Who worries and why?” (January 2020).
2 Actuaries Institute , 2019. “Spend your age, and a little more, for a happy retirement.” Actuaries Institute media releases.
This information and QSuper products are provided and issued by the QSuper Board (ABN 32 125 059 006, AFSL 489650) as trustee for QSuper (ABN 60 905 115 063). This is general information only, you should therefore consider the appropriateness of this information in light of your own objectives, financial situation, or needs before you make any decision. Consider whether the product is right for you by reading the product disclosure statement (PDS) available from qsuper.qld.gov.au or by calling us on 1300 360 750 to request a copy.
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