The Goldilocks Dilemma

The cycle of life means that people are most vulnerable at the beginning and end. Support, both financial and psychosocial, can make the difference between thriving and surviving.

During his 1987 election campaign, Bob Hawke made a statement that “by 1990, no Australian child will be living in poverty.”^[1]To my knowledge, no election candidate has been so bold as to make a similar promise for retirees.

Future outlook for the Australian population

Over the last decade, we have observed the evolution of the Retirement Income Covenant (RIC). ^[2] This is a leap forward in helping to prepare for population aging and rising demand for aged care and support services that are expected to shape Australia over the next 30 years. ^[3]

To provide context, between 2020 and 2066, the number of Australians aged 65-84 is expected to increase from 3.7m to 8.0m and the number aged 85+ is expected to increase from 528,000 to 2.2m.^[4]

The Goldilocks dilemma

Like our children, no retiree should be living in poverty. However, without a plan, this can become a reality for some Australians as they travel through the phases of retirement.

The challenge for individuals is trying to figure out how much money they need to live well in retirement and how much they can spend, so they don’t outlive their savings. A challenge for the Government is managing pressure on public funding for the Age Pension and aged care system. Trustees are sandwiched in the middle, tasked with the job of helping members solve the Goldilocks dilemma.

To help with the execution of the RIC, the Treasury has recently consulted with industry on a Retirement Reporting Framework and best practice principles.

The best practice principles

Developed to help trustees "improve the design and delivery of superannuation retirement income solutions," the best practice principles covers ^[7] :

understanding members’ retirement income needs;
designing the elements of a quality retirement income solution;
constructing retirement income solutions that meet members needs;
supporting member engagement with retirement income solutions; and
review and improve.

These principles align well with a product development cycle^[8] and are borne out of the three objectives of the RIC.

Figure 1: Three objectives of the RIC [9]

~ Managing risk includes investment, inflation, sequencing, and longevity.

An idea for consideration…

What stands out to me is the importance of these three objectives and the four risks being at the heart of decision-making when applying the best practice principles to the product development cycle.

A possible way that these objectives could be operationalised when developing a retirement proposition could include:

Investing in gathering information from the membership base about their preferences in respect to the three objectives and members’ appetite for longevity, investment, inflation and sequencing risks (“risk appetite’).
Developing “theoretical” cohorts based on the three objectives and risk appetite to maintain focus on designing a proposition that suits different needs and wants. This allows for the idiosyncratic nature of the membership base. It also recognises the practical limitations of gathering information from disengaged members.
Providing members with an assessment of product solutions for “theoretical” cohorts based on the three objectives and appetite for the four risks. This may help members to choose a solution based on the “theoretical” cohort that they identify with or that best represents them. Consideration could be given to providing members with a personalised rating for their chosen retirement solution, subject to constraints around providing personal financial advice.
Providing members with access to tools that educate them about life expectancies and confidence levels, for example, ‘I want to be 85% confident of not outliving my savings.’ ^[10]This can help to empower members to choose products that align with their risk appetite and implied time horizon. It also provides one of many possible checkpoints for offering members support through personal financial advice.
Developing member communications that include outcomes based on a range of scenarios to demonstrate the conditions where a retirement product may outperform, meet expectations, or underperform.
Improving transparency in the naming of products to manage policyholders’ reasonable expectations in relation to guaranteed income and longevity protection.

The product solution

Australia is in a unique position to use a ‘blank sheet of paper’ to design a system that delivers better outcomes in retirement.

The approach for implementing the best practice principles, which I have proposed in this article, is trying to ensure that the three objectives and appetite for the four risks drive decision-making.

In doing so we can try to help members to understand trade-offs, limitations and how competing risks are managed. This empowers them to make informed choices.

We should seize this window of opportunity by keeping the door open for discussion on product innovation. That way, we can try to cater for the diverse needs and wants of different cohorts of retirees while we endeavour to deliver better and more tailored outcomes for them.

This article is a summary of Georgina’s submission to the Treasury in response to the consultation paper “Best practice principles – superannuation retirement income solutions.” The consultation process ran from 7 August to 18 September 2025. ^[11]