Group self-annuitisation products (GSA) could be the supplement to superannuation to give retirees the confidence to spend in retirement, according to QSuper.
The super fund’s latest whitepaper on retirement security said it was important for funds to address the issues that arose from the reluctance to annuitise retirement wealth.
It said GSAs, or pooled annuities, provided members with lifetime income by sharing longevity experience within a pool and this almost eliminated individual longevity risk.
“Pool members will still face some level of systematic longevity risk, if the whole population is living longer, although this can be managed through income adjustments,” it said.
“A simple GSA structure will involve the fund setting initial payments based on assumptions to expected mortality rates, investment returns, fees and costs. Subsequent payments will be adjusted to reflect actual investment returns and mortality.”
QSuper noted that GSAs could be cheaper than traditional annuities as there was no requirement for the super fund to hold capital. Unlike a life company, a fund could invest in any of their investment options with a long-term record.
QSuper said GSAs could:
- Provide a form of money-back protection;
- Could be designed in a way that if a retiree passed away before receiving income payments at least equal to their purchase amount, the balance of their purchase price would be paid to their estate; and
- Offer the option for payments to continue to a spouse after the passing of a member.
“If a GSA meets certain government legislation, members may be entitled to the discounted treatment in the assessment of their assets and income tests for the Age Pension. This legislation is called the capital access schedule, placing a limit on the amount of money one can access from a product, either through voluntary exit or in the event of death,” it said.
“If a GSA is designed to meet this limit, then retirees will receive this discount on their asset and income assessment for the means test. This discount may enable retirees to receive the Age Pension, which they otherwise may not have been entitled to, or receive a higher level of Age Pension than they ordinarily would.”