QSuper has envisioned a process for creating its own deferred annuity that would be one part investment and one part a group insurance contract.
Speaking after a hard hitting oration to the ASFA annual conference in which she called for a “second super revolution”, Rosemary Vilgan, chief executive of QSuper, said this product could be created if tax laws change to treat income from deferred annuities the same as other retirement income.
In the model QSuper envisions members could be placed into pooled age cohorts for a small part of their account balance, which could represent 1 per cent of their 12 per cent contributions.
Each pool of members would have an actuarially pre-determined age at which payouts would start, such as age 85.
The money in the pool would be invested in a mix of growth assets and insurance policies determined by trustees and the chief investment officer.
“Trustees and the CIOs would be best placed to say when it is a good time in the market to buy insurance given the economic climate,” said Vilgan.
The insurance policies could be tendered to market in the same way as TPD or life insurance ensuring members are likely to get a better rate than if they bought it on an individual basis.
“It is much better solution than a member trying to buy a policy from a life company,” said Vilgan. “Not only do people not want to give up a lump sum, but an individual annuity brings some market risk as you are buying it on a single date.”
She envisioned technical difficulties as determining the age range to go into each pool and whether some element of death benefit might be awarded to the family of those who die before reaching age 85. She dubbed the product group long life protection.
Vilgan had alluded to the product in her speech at the Melbourne Conference and Exhibition Centre, in which she called on other funds to follow suit in giving their members a better measure of income certainty in retirement.
Not all sections of the audience applauded the 20 minute speech, which opened the ASFA conference, in which she told delegates that the industry was placing too much emphasis on “silly” return comparisons from rating agencies and that they needed to focus on member retirement outcomes.
She said: “I challenge any of you in this room to know which accumulation fund amongst us or in any of the surveys is the most reliable at delivering what the PDS promises.”
She added that the current system was guilty of funding the building of retirement assets that were not going to be used as retirement income.
Vilgan’s speech was echoed by Pauline Vamos, chief executive of ASFA, on the second day of the conference.
She said trustees should be able to default members into MyPension type income streams and it should be compulsory for superannuation fund statements to disclose income stream projections.
In a paper, entitled A New Framework for a Better System, ASFA outlines the principles on which it believes Australia’s retirement income system should continue to be built, as well as the goals and objectives for the system.
Vamos said innovation, bold policy decisions and a greater choice of options for retirees would be needed.