If elected in September, shadow treasurer Joe Hockey says he will encourage the issuance of longer dated government debt in a move to kick-start an Australian annuity market.
Longer term index-linked government securities would create a good match for the risk a financial services company takes on when it promises to pay a retiree a monthly income until his or her death. A lower risk profile should, in theory, lead to higher annuity payouts for retirees.
Speaking at a Bloomberg conference on the Australian economy, Hockey said: “We should extend the maturity of securities up to 40 to 50 years so we can develop a liquid annuity market that is attractive for people in Australia.”
He would also like to create conditions that make it attractive for Australian companies to issue more corporate debt, which he believes would be of benefit for both the annuity market and for private sector infrastructure development.
However, Hockey said he would not help superannuation funds to purchase Australian infrastructure on attractive terms, as suggested earlier at the conference by Minister for Superannuation Bill Shorten.
The shadow treasurer said: “I believe in free markets. The government should not be an asset allocator.”
He qualified these remarks by saying that, where possible, he would take steps to remove any barriers to investment in Australian infrastructure.
Hockey’s views on annuities matches those set out by the Actuaries Institute in a paper published in 2012 entitled Australia’s Longevity Tsunami – what should we do?
The paper states an awareness of product providers experiencing problems finding investments to back annuity products.
“A key element, which could facilitate product development, but which is currently missing, is the availability of longer dated government (and corporate) bonds. Superannuation funds can try to create their own fixed term annuity-type products, but the lack of available longer dated government bonds has made this a difficult exercise,” the paper said.