Access Economics estimates this would, at negative overall cost to Government [due to reduce pension cost], significantly improve average retirement incomes, especially for older retirees. If leaks from the Henry review are correct then the plan is roughly as follows. Lowerincome earners retiring with small super lump sums would have the option of handing the money to the government in return for guaranteed income payments indexed to the age pension. For a retiree with $100,000, the top-ups could be worth 20 per cent of the age pension and would come in addition to the means-tested entitlement to the pension. Many others have backed the plan, and it is believed the Henry panel has asked Treasury for costings and actuarial analysis of governmentprovided lifetime income stream products administered through Centrelink. This “plain vanilla” lifetime income product would be a prudent use of relatively small superannuation lump sums, says Reynolds.

“If it was priced correctly, there would be no downside financially for the government – it would be an actuarially fair transaction – and low-income earners would have better incomes during their retirement,” she points out. Lifetime annuities which are active and immediate are offered by three providers only: Challenger Life, CommInsure and BT/Westpac [there are also legacy annuities, but these are closed to new investors]. This shortage of active, immediate annuity providers can be seen as a market failure, but still super funds and the managed investment sector are divided over how the Federal Government should tackle the problem. AIST, which represents not-for-profit industry, corporate and public sector super funds, wants a voluntary government annuity product.

Reynolds says “there’s not a lot of lifetime annuity products, and the ones around are pretty highly priced, especially for retirees with small amounts of savings. If someone with a lump sum of $60,000 could buy a top-up to the age pension from the government, it might provide an extra $2,000 a year. For people at the lower end of the income scale that money is for life, it’s not subject to market volatility and it provides a much-needed buffer.” Corruption According to Reynolds, a powerful determinant of the adequacy of retirement incomes, yet one which until recently received little attention, is the efficiency of the superannuation system and its ability to deliver strong returns net of fees and commissions over the long term.

Modelling by Access Economics shows that a 0.75 per cent increase in annual performance would increase superannuation assets by 19 per cent of GDP by 2041, and improve total retirement benefits (including the public pension) by 7.4 per cent for a worker on average income [relative to the modest retirement income benchmark]. AIST strongly supports efforts to raise awareness about these issues and implement measures to stimulate competition on fees and net investment performance in the superannuation industry. “Banning commissions on retirement saving and income products as the first and most important step in this process,” says Noonan. The level of trust between members and the superannuation system as a whole must be improved, adds Noonan. “A growing awareness of the impact of high fees on fund returns has jolted public confidence in our compulsory superannuation system.

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