The Institute of Actuaries of Australia has welcomed the Federal Budget announced on 8 May, noting the initiatives proposed therein to boost income for retirees and changes to the means test on Comprehensive Income Products for Retirement (CIPR).
In a statement, the Actuaries Institute says that the measures should enhance retirees' living standards and allow retirees to better manage the risk that they might outlive their funds.
“The government continues to encourage Australians to prepare and save for their retirement,” said Elayne Grace, CEO of the Actuaries Institute. “This steady approach will provide confidence where it matters most: for Australian retirees and those about to finish work."
The initiatives to manage lost superannuation accounts and reduce fees will also increase super balances for younger workers.
“Superannuation trustees will need to formulate a strategy to provide members with a path to achieve their retirement income objectives," Ms Grace said. "Trustees will be required to offer Comprehensive Income Products for Retirement (CIPRs) that provide individuals income for life, no matter how long they live,” she said.
The Institute welcomed the clarification of the Age Pension treatment of innovative income stream products after several years of consultation. From July 2019, the means test will change to assess 60% of all pooled lifetime income products as income and 60% of the purchase price as assets until age 84 (or a minimum of five years), then 30% for the rest of life.”
Recent retirees with total superannuation of less than A$300,000 (US$224,400) at retirement can now make voluntary superannuation contributions for a year after they cease work.
Young super members
Ms Grace said that measures to remove default life insurance cover for young fund members (under age 25) will reduce their premiums and erosion of super benefits. However, the Institute acknowledged that young members could be exposed, in the event that they become disabled.
“The Institute believes that funds will need to educate their young members about the benefits and risks of not opting-in for insurance cover," Ms Grace said.
In addition, from July 2019, the government will expand the Pension Loans Scheme for older Australians, including self-funded retirees. This facilitates the release of equity from homes via a government reverse mortgage, at an interest rate of 5.25% (a rate that has been unchanged for 20 years). Ms Grace welcomed the move, which she said would encourage the private market to develop innovative schemes to unlock equity.