Australia has the opportunity to lead the world in post-retirement products and export its know-how, according to Moshe Milevsky, the internationally renowned author and academic from Canada.

The finance professor at York University in Toronto, who is an author of several books on retirement income, spoke at the Association of Superannuation Funds of Australia Investment Interchange lunch in Sydney last week.

The speech preceded a statement from ASFA which listed eight impediments to healthy post-retirement product innovation.

Milevsky gave an example of the sort of innovation he thinks Australia could capitalise on, outlining a theoretical insurance product called a return contingent life annuity. This collects premiums or a one off payment from savers in return for the promise of a retirement income top up at a pre-selected age. The payout would be conditional on an individual’s savings underperforming a predetermined level. He believed such a product would ensure a better income in retirement than a conventional lifetime annuity.

“One of the things that excites me about Australia is that there is a huge pool of money and a hunger and openness for innovation, while you are not bogged down by as much regulation as in the US,” he said.

He cited the example of Chile as a country whose reinvention of its retirement system in the 1980s leading it to export this expertise throughout South America.

“You are in a perfect position to innovate too. Then it becomes the Australian model of retirement income, a model that other countries can borrow,” he said.

He contrasted the relatively low level of regulation and vested commercial interests as working in Australia’s favour with the USA.

“The Department of Labour cannot even get statements sent to 401k members that will list an annuity value to their accounts, because there is all this pressure from providers,” he said. “It is stifling how financial innovation cannot be created.”

Yesterday, ASFA issued a statement that listed eight impediments to innovation in the post-retirement product market. The recommendations are as follows;

  1. Amend the SIS regulations to:provide equivalent treatment of post-retirement products offered by life insurance companies and by superannuation funds, preferably through the development of regulations which apply to both; to set out general required characteristics for longevity products rather than mirror the specific characteristics of existing products in the market and to allow funds to offer products that provide a deferred benefit past normal retirement age.
  2. Amend the APRA prudential standard applying to minimum surrender values of pension and annuity products to reflect the special characteristics of such products.
  3. Amend the means test applied by Centrelink to exempt deferred annuities from both the asset and income tests during the period prior to payment.
  4. Put a new administrative arrangement in place so that the ATO, APRA, ASIC and Centrelink undertake the assessment of new post-retirement products on a consistent and coordinated basis.
  5. Develop a specialised accreditation for the provision of retirement and post-retirement financial advice.
  6. Make legislative amendments to provide tax treatment for deferred annuities and other products that is comparable to that provided for existing post-retirement products.
  7. Permit trustees of a self-managed super fund (SMSF) to purchase deferred annuities, and like products, on behalf of an SMSF member.
  8. Review the system’s design to allow MySuper products to become MyPension or likewise products.
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