Lifetime income products can provide security and positive retirement outcomes: report

With cost pressures rising and peoples’ super coming under stress, the need for advisers to reassure clients that their savings are safe as well as provide solutions that better prepare them for retirement is becoming more important.

Accurium’s Confidence for Life - A retirement advice framework report, released in collaboration with Generation Life, has highlighted the potential benefits of incorporating lifetime income products into retirement.

“Unlike an account-based pension (ABP), which can run out if markets perform poorly or withdrawals are too high, lifetime income products offer an efficient source of guaranteed income by pooling longevity risk across a group of investors,” the report highlighted.

According to the data, confidence in retirement improved from 10 per cent to upwards of 41 per cent when incorporating a life income product. Modelling showed some households could see a rise of up to 68 per cent in their first-year age pension when life income products were part of their portfolios.

“Together, a lifetime income product and ABP can manage risk and diversify the income sources of a client’s portfolio” Accurium stated.

“These findings are significant given a central issue in retirement planning is longevity risk, or the fear of outliving savings.

“The research demonstrates how life income can help by providing income guaranteed for life that can grow with investment performance, while also improving access to the age pension today.”

Patrick Clarke, general manager of retirement solutions at Generation Life, said: “This research underscores how [life income products] can give retirees both confidence and choice. By combining income guaranteed for life with access to growth assets.

“[Life income products] can help advisers deliver better outcomes for their clients. We see this as a major step forward in helping Australians retire with greater certainty and freedom.”

As it stands, cost of living pressures and longer lifespans are placing stress on Australia’s retirement savings. Studies show that overall, many Australians have negative sentiments about retirement. This is particularly an issue with Millennial and Gen Z future retirees, who are expecting to have to retire with large amounts of money to remain comfortable.

“I believe most Australians are not well equipped [to face these challenges in retirement],” Roger Perrett, partner and financial adviser at FreshWater Wealth, told ifa.

“Only three in 10 pre-retirees feel financially prepared for retirement, highlighting a critical readiness gap in retirement planning,” he added, referencing CoreData numbers.

Furthermore, more Australians are living well beyond life expectancy estimates. Traditional retirement practices of needing roughly two decades worth of super and savings past retirement age are no longer safe assumptions to make, with many living 10 years past this goal.