Few retirees use products with longevity risk protection.Australia’s superannuation system is failing to provide enough choice to allow people to manage risk in retirement, and failing to give guidance to retirees as they make complex financial decisions, the Murray inquiry has found in a damning verdict.
The Financial System Inquiry’s interim report notes that while people are working, employers automatically make super contributions on their behalf – but when people retire, there are few products available that would help retirees manage their risks during the drawdown phase.
”Although individuals are concerned about outliving their savings, few retirees use income stream products with longevity risk protection, and there is a limited choice of these products,” it said.
The inquiry has called for a new round of submissions on how Australia could better meet the challenges of an ageing population, such as by providing incentives to encourage retirees to purchase retirement income products that help manage longevity and other risks, or forcing people to convert all or part of their superannuation benefits into an income stream that provides protection against inflation and longevity risk.
It echoes recommendations from the Henry tax review that suggested the government should offer annuity products that would allow Australians access to lifetime-income streams.
Industry participants were quick to voice their support for the Murray inquiry’s findings. Brian Benari, the chief executive of Australia’s biggest annuities provider, Challenger, said that Australian retirees were being ”failed by a system which is denying what they want”, which is certain income in retirement.
”We agree that despite a large body of evidence supporting the assertion that people value longevity risk protection, there are too few longevity products on offer,” he said.
Jeremy Cooper, the chairman of the former Labor government’s Super System Review, said the report was brutally honest in laying out the case for reforms across the retirement system. He also supports further debates on policy options on tax and social security incentives and the inclusion of longevity products in default options.
”As observed, Australia is the only developed nation with a compulsory retirement savings but no decumulation structure. We are a laggard by world standards and are being trumped by Chile, Canada, Sweden, Denmark, Singapore, Israel, and the Netherlands – this needs to change,” Mr Cooper said.
The interim report highlighted the need for urgent attention to fix the decumulation phase of Australia’s superannuation system, including tax hurdles that stymie the development of pension style products, Financial Services Council boss John Brogden said.
He argued that there should be no tax impediment for investors buying annuities.
Pauline Vamos, chief executive of the Association of Superannuation Funds of Australia, said policies that help reduce the complexity of decisions Australians face when they retire should be encouraged.
ASFA is lobbying for changes to the Superannuation Industry Supervision Act to provide equal treatment of post-retirement products and allow funds to offer products that provide benefits past normal retirement ages.
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