Retirement covenant an advice opportunity

retirement covenant advice

The Retirement Income Covenant will create further opportunities for financial advisers who can map out the income needs of clients beyond the accumulation phase and well into their retirement years.

Financial advisers need to be aware of the intended outcomes of the Retirement Income Covenant and its impact on retiree clients as they are well placed to help them meet those objectives, according to two retirement income experts.

Challenger retirement income chair Jeremy Cooper said the future of retirement income advice will be tied to the covenant and adherence to it will be used to measure whether services providers are meeting their clients’ interests.

“The government will make retirement a more distinct and sharply different space than accumulation as it currently is. There will be new products and new ways of thinking that will require deeper discussion and all superannuation funds will have to have this strategy, and it will not be compulsory or a default, but it will have to be offered to all retiring members,” Cooper said during a session at the AFA (Association of Financial Advisers) Hybrid Conference 2021 today.

“It does not apply directly to advisers, but be careful of it becoming a de facto test and these conversations of longer-term solutions will be challenging.”

Speaking alongside Cooper, Challenger head of technical services Andrew Lowe said advisers who have clients in retirement will find their objective is usually to make their income and savings last as long as possible.

“Also underneath this income is the idea of preferencing different types of spending and having a more secure level of income that can be there to make sure the essential spending requirements are met,” Lowe said.

“If I look at some of the likely requirements of the covenant, this concept of maximising income through retirement, not just upfront but for whole of life, means taking into consideration all sources of income that are available.”

He said advisers were able to take a wider look across income from accumulated superannuation savings, personal savings and the age pension and help manage risks and exposure to markets.

“A real important component in dealing with the covenant is this concept of helping your clients with different retirement income objectives and balancing those retirement income objectives because what’s important to one client might be very different to what’s important to another, and that’s where this concept of individual tailoring with your advice is really important in these circumstances.

“I have long said that advisers are best placed to be able to assist their clients with these and many other objectives going forward.”

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