The search for solutions to the retirement incomes dilemma

Successive reports issued in early September have reinforced the fact that Australia is facing a retirement incomes shortfall requiring not only a policy response from the Federal Government but product answers from the financial services industry.

The Financial Services Council released survey data revealing the retirement savings shortfall amounted to more than $1 trillion, while a few days later the Actuaries Institute released a white paper which referenced a “longevity tsunami”.

What both pieces of research confirmed, however, was that while the Government needed to review and amend its policy settings to better accommodate the increase in Australians aged over 65, the financial services industry needed to deliver products capable of ensuring consumers have adequate incomes decades after they retire.

For its part, the Association of Superannuation Funds of Australia has not only recognised the challenges with respect to retirement incomes, but has emphasised the central role superannuation funds can play in meeting those challenges.

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Companies such as Challenger have made a strong case for retirement income streams based on products such as annuities, while global companies such as MetLife are set to launch other products offerings which draw on their extensive experience in the employee benefits arena, particularly in North America.

For its part, the Federal Government has acknowledged the looming problem with respect to retirement incomes, but has moved little further than encouraging employers to retain people in the workforce beyond 55, progressively lifting the superannuation guarantee to 12 per cent and increasing the preservation age.

However, Actuaries Institute chief executive Melinda Howes has signalled the Government policymakers and the industry need to go further by modifying the age pension, superannuation and tax systems.

The Actuaries Institute white paper outlines a number of policy changes for the Government to consider, including:

• Providing greater incentives to individuals to take the majority of their retirement benefits as an income stream;
• Increasing the preservation age to three to five years less than the age pension age;
• Extending the MySuper regime to include post-retirement solutions with ‘intelligent defaults’ that provide retirees with secure income streams;
• Removing the impediments that discourage older people from working, including age limits on superannuation contributions, and the means test; and introducing an increased age pension or payment for people who continue to work past the age pension age;
• Removing legislative barriers preventing innovation in developing post-retirement income-stream products such as annuities; and
• Linking changes in the age pension eligibility age to improvements in life expectancy.

While the Minister for Financial Services and Superannuation, Bill Shorten, earlier this month chaired an industry roundtable which discussed issues including longevity and retirement incomes, it is clear any necessary policy changes will be implemented after the next Federal Election.

In the meantime, it remains to be seen how the industry acts to provide its own solutions to the problem.