Challenger Life, Australia’s largest provider of guaranteed annuities, is holding “early stage discussions” with some super funds about the provision of a unitised version of this product as an option for members.

While a handful of funds, such as Maritime Super, offer an annuity for their defined benefit members, none of the not-for-profits is known to include this option for the big majority of defined contribution members.

At the Australian Super and Investment Conference, organised by AIST on the Gold Coast last week, a session on retirement savings discussed a range of possibilities for super funds to satisfy an apparent demand for more-certain income in retirement.

An AIST submission to the Henry (tax) Review, for instance, suggested that the Government could enter the annuity market by allowing people to buy “top-up pensions” to supplement the old-age pension.

Fiona Reynolds, chief executive of AIST, said the submission noted that the annuity market was under-developed and the Government still bore the brunt of longevity risk for the majority of the population.

She said the suggestion could be implemented within the existing social security infrastructure.

Reynolds also foreshadowed a supplementary submission from AIST which would look at linking the notion of a top-up pension together with the question of overall adequacy of the super contributions system.

Many of the submissions to the Henry Review which referred to the annuity issue look to lock up about 70 per cent of super fund balances on retirement as annuities.

However, AIST believes that balances are still too small for such a proposal. Such a lock-up in annuities would be preferable once contributions got to 12 per cent of income, Reynolds said.

Richard Howes, chief executive of Challenger Life, said that the two risks which were critical for shaping retirement incomes policy were market risk and longevity risk.

He said that the case for annuitisation was compelling and a portion of annuitisation for super in retirement would achieve the fundamental objectives of the super system.

Annuities offered good rates of interest – currently about 1.5 per cent above government bonds – and a guaranteed income. They were of a long duration, could be CPI linked and flexible, he said.

Asked why super funds had not offered annuities before now, Reynolds said a combination of the market downturn and the Henry review had focussed attention on the products. In a 20-year bull market, annuities did not seem so necessary.

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