The Actuaries Institute has expressed support for any effort to change the current retirement framework from a focus on lump sum payments to providing an income in retirement.
In its submission to Treasury’s MyRetirement review, the Institute also said the government must allow funds to offer flexible products that meet retirees’ individual needs. It urged caution, warning a prescriptive approach could allow sub-scale, unsustainable products to proliferate.
“The right approach is to start with a framework and then let this drive the products. The framework must meet the government’s stated aims and address members’ needs and interests, including whether longevity protection products meet individual fund members’ requirements,” said President of the Actuaries Institute, Jenny Lyon. “There should be scope for the policy approach to be reviewed as the product landscape evolves. It should not be compulsory to offer a particular type of retirement income product until we see how the market develops.”
The Institute’s submission states that every superannuation fund should be required to have a retirement income governance framework, in the same way funds have guidance for investment and insurance. That framework must set out how trustees intend to guide their members at retirement, including the social security implications for members with low account balances and members in poor health. Some funds may develop their own longevity protection products, but others may offer their own account based pension and guide members to longevity protection products from third parties.
Offering longevity protection products brings with it complexity including guarantees, scale, managing products efficiently, and the risk of product failures, which may mean the best outcome is through a fund selecting or guiding members to a third party.
There are also issues around flexibility, the possibility a member may need to access a lump sum, which must be weighed against the benefits of pooling.” Other issues include how longevity pooling affects those with a lower life expectancy and whether penalties apply if a member withdraws their funds.
The Federal Government announced in December last year that it wanted industry input on the development of post-retirement products or a framework that would encourage comprehensive income for retirement products. Submissions close on 9 June.