At retirement, individuals face complex decisions about whether and how to convert an accumulated superannuation balance to an income stream to fund their retirement. In this chapter, the retirement income system and products are assessed against how well they provide the three main attributes of income streams desired by retirees:14
- Income — the expected income during retirement from a given accumulated balance.15
- Risk management — including protection from longevity, investment and inflation risks.
- Flexibility —a range of characteristics, including access to one-off withdrawals during retirement, the ability to bequeath assets and control over investments.
The Inquiry is also considering the effects of retirement income system settings on the distribution of risk between the government and the private sector and, to some extent, the implications for future growth in fiscal costs. Fiscal sustainability is an important feature of any retirement income system, although it is not something that can be comprehensively examined in isolation from the rest of the government’s budget.
The Inquiry is not considering a range of policy settings outside of, or peripheral to, the financial system, including the ages at which individuals can access their benefits and receive these benefits tax-free.
14 Similar features of income products, which create a ‘trilemma’ for retirees, are described in Mercer 2014, First round submission to the Financial System Inquiry, page 23.
15 The measure of ‘income efficiency’ used is based on a ‘value for money’ concept. It is the expected present value of income in retirement, as a percentage of a product’s purchase price.