Call for removal of barriers to post-retirement products
The Federal Government should legislate to remove regulatory barriers which impede product innovation in the post-retirement space, particularly with respect to annuity-type products, according to new research released by the Association of Superannuation Funds of Australia (ASFA).
The research, released this week, claims the current governing legislation, Superannuation Industry (Supervision) (SIS) regulations, "are very focused on post-retirement products that are currently in the market, and severely limit the scope for innovation and new products".
"New supportive regulations should set out general requirements which are not linked to specific products, such that it is a principles-based framework," the ASFA research analysis said.
"The regulation of income streams has, to date, remained dependent on individual product characterisation (for example, account-based, lifetime, residual capital value) rather than one set of acceptable principles for income streams (that is, regular drawdown regardless of whether payments commence immediately or at a future point of time)," it said.
The ASFA analysis said such product-based characterisations drove legislative difficulty in arriving at a consistent view and treatment of different types of income streams.
"This issue is clearly demonstrated through the classification (or lack thereof) of deferred and variable annuities in the context of SIS legislation and regulations and the tax law."
The analysis said deferred annuities were one example of an innovative product solution, but there were many other potential products and solutions and that, accordingly, any regulatory barriers which impeded product innovation and the development of longevity risk solutions to consumers should be removed.
"In particular, the regulations should permit products which offer a deferred benefit, by ensuring that deferred annuities and like products are:
• eligible for the benefits tax exemption for persons over aged 60 years and over
• not subject to undue restrictions, such as those requiring an individual, over a specific age, to satisfy a work test before they are able to purchase such a product with non-superannuation monies
• unambiguous exemption from the minimum drawdown rules during the deferral period. Regulations should also contemplate products which have all, or some, of the following characteristics:
- mitigate longevity risk, but aren't necessarily lifetime guarantees
- are paid for incrementally
- are reversible to the extent that any remaining assets are available, but the ‘longevity premiums' paid to date are not
• are linked to an allocated pension and form a back-to-back contract for the investor, thereby providing a single income stream.
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