Superannuation is unlikely to provide an adequate retirement income, so the Government must prioritise longevity risk policies and develop a new-generation variable annuities market, according to the Institute of Actuaries of Australia (IAA).
In its Federal Budget submission, the IAA stated that due to both market risk and increasing retiree longevity, superannuation was unlikely to meet retirement income needs.
“We urge the Government to prioritise Budget policies aimed at managing Australia’s ageing population, including flexible ‘new generation’ annuities, which protect against the risk of outliving your retirement savings and the market risk of losing superannuation capital in retirement,” said the IAA’s chief executive, Melinda Howes.
Howes said the IAA believed new generation annuities should seek to emulate some features of popular account-based products like allocated pensions, which provide retirees with access to their capital, payment flexibility and potential benefits from a rising share market. Innovation relating to annuities would give retirees greater access to their capital when needed, while protecting against market downturns.
Changes to the superannuation and tax laws were required to promote innovation in the annuities market, said Howes.
The IAA is calling on the Government to make changes to the Superannuation Industry Supervision Act Regulation 106, which it described as “unnecessarily prescriptive”. The IAA also wants a reversal of the unfavourable treatment of annuities under aged care and Centrelink rules. The institute also asserted that annuities and deferred annuities should be able to be issued as a component of an account-based pension, and that tax rules on deferred annuities should be changed so that, if taken out in the drawdown phase, the product is regarded as a pension (rather than a non-pension) for tax purposes. There should also be a clear, regulatory regime for variable annuity style products, the IAA stated.
