Should super funds be compelled to offer longevity products?

The Government could compel superannuation funds to offer longevity-based products that could increase retirement income by 15% to 30%, according to an Actuaries Institute paper by academic actuary, Anthony Asher.

“It seems clear that more direct Government intervention may be required – just like the introduction of the superannuation guarantee, MySuper and even account-based pensions,” the paper said.

“While not likely to be popular, there is potentially a case for compulsory partial allocation of some members’ superannuation to lifetime income stream products in retirement."

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He said funds should offer members an appropriate longevity protection product for all or part of their balance, setting out pros and cons, before paying any benefits at retirement.

"Members and their beneficiaries are prejudiced by the absence of options to obtain suitable income stream products, and trustees should be at risk if they fail to make such an option salient," the paper said.

"Modelling shows a 15% to 30% increase in retirement income by using an appropriate allocation to suitable lifetime income streams.”

Asher said most retirees’ needs feed into five requirements from their savings: a high income, an income that lasted (including for a spouse), a stable annual income, access to enough capital, and a desire to leave a bequest.

He said people assigned different weights to these objectives but trustees could offer a range of products to meet each of these needs and provide advice based on general expectations.

The paper also said trustees needed to provide affordable advice to members to ensure longevity products were broadly tailored to their needs.

“This could be similar to the requirement for trustees to offer insurance to members. The proposal to offer longevity protection recognises that these products may not be suitable for take-up by members with low balances,” it said.

The cost of advice, the paper said, could be significantly reduced if the Australian Tax Office (ATO) could provide some of the data necessary for good advice.

It said if the ATO could provide information about an individual's income, superannuation and share assets, with appropriate permission, in a standardised format to advisers the cost of advice could be significantly reduced.

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Superannuation Retirement Income Streams are to provide a”tax free” income in retirement, never ever intended to provide inheritance bequests. However, under current regulations you can maintain a proportion with no limit in Superannuation Accumulation Fund environment which is minimally taxed to safeguard against longevity and possibly leave an inheritance.

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