There is a new generation of retirees coming through, with larger superannuation balances than ever before and it is changing the way the industry looks at pension products. Many people fail to realise that when they retire, the cash balance of their super fund is likely the largest it will ever be, yet they will probably earn 60% of the money they spend in retirement after retirement through the clever investment of their money. But should you consider an off the shelf product for your super in its pension phase instead of an independent financial planner?
So when you stop and think about it, it means having your money in a well thought out, market invested product, run by professionals, makes a lot of sense. There aren’t many options for well-designed, professionally managed, off the shelf products in the pension arena.
If you go and see a financial planner, they will likely put your money into an account based pension. For a fee, they will provide you with specific advice, and invest your money in various types of investments according to your income needs and individual risk profile. Sounds complicated doesn’t it? This used to be the only way to structure your income from your super post-retirement other than the purchase of an expensive, and maybe even non refundable annuity.
It seems unnecessary though for a process like this to be so individually tailored when the approach in question is often highly replicable for those seeking a simple outcome, income and growth of their money. So of course it makes sense that a variety of products are coming to market that combine planning, investment and predictable income streams into products that are easy to understand. One that has been talked about in the media a little of late is the new MyPension product from Equipsuper, a product believed to be the first of its kind in packaging what is usually a financial planner led process. It allows retirees to draw a regular income from a pension while growing the asset base through a deliberate investment strategy. Equip MyPension is giving people the power to have a simple, hands-off approach when investing their retirement savings.
Equip’s product takes your lump sum superannuation amount, and invests it into a strategy that they would normally provide to their financial planning clients. The investment strategy strikes a balance between income stability and capital growth over time, with the goal to make your money stretch as far as possible. You receive a stable, regular pension income, based on your starting balance and your age. For example, if you start Equip MyPension under 85 years of age, these payments will be 7% of your initial account balance per year, paid as monthly income. The income payments will remain at that level until age 85, or you run out of money. Since this is fixed, the structure needs to fit with your circumstances for it to be right for you. It is however nice to see someone making it a little easier to understand and implement ‘off the rack’.
“We really wanted to help those people who generally don’t seek advice when entering the pension phase. Equip MyPension provides them with an account-based pension with a set-and-forget investment strategy, similar to what they could get from a financial planner,” said Geoff Brooks, Executive Officer, Strategic Marketing and Communications.
According the Equip Super’s spokesperson, the standardised strategy approach appears to be ideal for people who have between $200k and $600k upon retiring, where complexity isn’t really necessary. The 7% income stream presents enough income to the member allowing them to supplement their aged pension without drawing down on too much of their capital base. In a year like 2013/14, where super returns are exceeding 10%, people would be receiving their 7% income, and seeing their super balances rise as well, which is a rewarding result.
In this model, the fund holds 2-3 years worth of income in cash too, to minimise the risk of having to liquidate investments when markets are down.
“It is designed to offer a structured approach to pension in retirement, fully automated, for anyone that doesn’t want to use a financial planner.” And with the recent scandals around Financial Planners at the Commonwealth Bank you could be forgiven for being a little anxious about the industry.
Do you use a specific pension product to manage your pension phase? Or have you had a financial planner tailor an approach? Tell us in the comments below…
This article has been sponsored by Equip Super. All information has been prepared independently, by an independent writer at Starts at Sixty and presents interesting insights we feel, for our audience to understand. For more information about Equip Super’s My Pension products please visit www.equipsuper.com.au/mypension.