IFSA warns on damage from Henry Review
Key concepts contained in the interim report of the Henry Review for the provision of compulsory government annuities could cause real harm to the people they are designed to assist, according to the Investment and Financial Services Association (IFSA).
Referring to research conducted for IFSA by Towers Watson, IFSA chief executive John Brogden suggested the options being considered to manage the cost of an ageing population might be significantly unfair and, as a result, cause considerable hardship to many Australians.
“A compulsory government annuities scheme would require Australians to hand over all or part of their superannuation savings to the Government when they retire,” Brogden said.
“The Government would then determine a permissible annual draw down.” He added that the scheme would result in lower paid workers subsidising wealthier Australians.
The main issue with the proposal, said Brogden, is that it would reward those who live longer at the expense of those who have a shorter life. He added that while preventing people from spending their super as they wish might seem like a good idea, there was no evidence to suggest that retirees do not appropriately manage the spending of their super funds.
He added that Australians should have a choice as to how they manage their retirement savings and stressed that a government mandated system would be a significant market distortion. Brogden also said that governments should not adopt a contingent liability of the kind this scheme may produce and that a scheme of this sort would strongly discourage voluntary contributions into superannuation. Mandating a solution would also mean those people wanting an annuity product would be denied choice, he said.
Brogden also stressed that forcing individuals to fund a scheme that might not be on just terms could be in breach of the Australian constitution.
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