Will CIPRs require compulsion?

A modest level of compulsion may be required to ensure that comprehensive income products in retirement (CIPRs) actually succeed, according to actuarial research house, Rice Warner.

Rice Warner has put its position in a submission responding to the Federal Treasury’s position paper on the so-called Retirement Income Covenant, in which it says it is broadly supportive of the proposal requiring superannuation fund trustees to develop retirement income strategies for retirees.

However, it said that if trustees were required to offer a CIPR product, Rice Warner believed “a modest level of compulsion to purchase would be required for CIPRs to succeed”.

“If this is not the case, we expect the level of adoption by members will continue to be low,” the research house said.

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It said that given the complex nature of people’s financial circumstances, financial advice would need to be provided to offer a CIPR product under the proposed framework and this would likely make the products relatively more expensive, thus reducing their take-up.

Rice Warner detailed its main concerns with the CIPRs framework as being:

- Trustees should not have to offer a CIPR product if there is no compulsion for the member to take it up,

- The proposed framework should not mandate the types of products required to provide longevity protection (for example, not every retiree will want constant income throughout retirement),

- The proposed design and provision of CIPR products does not adequately consider the personal and financial circumstances of members,

- The proposed definition of when funds would be required to provide financial advice when offering a CIPR is unclear and may be problematic to implement,

- The relatively short deadline for implementation will likely result in limited product innovation and limited opportunity for additional competition from new entrants.