Super funds should be required to pre-select a single retirement income product for members, the Financial System Inquiry has recommended, while acknowledging at the same time that no one retirement product will suit all.
The recommendation has been made in recognition of the general level of difficulty members have in making decisions on managing their accumulation balance in retirement and from advisers perceived lack of awareness of longevity risk.
Under the report’s proposal the member would either give their authority to commence the pre-selected option or elect to take their benefits in another way.
This product, says the report should include a regular and stable income stream, longevity risk management and flexibility.
The report states that the design could vary with the member’s known characteristics, such as the size of their superannuation benefits, but also acknowledges “people tend to have diverse needs in retirement, and no given product or combination of products will be appropriate for everyone.”
David Bell, chief executive of the Actuaries Institute, which has been a major influence on the Inquiry’s thinking on retirement income, said the requirement to pick a single product for members means that people who are unable or fail to make a decision will be protected.
Pauline Vamos, chief executive of the Association of Superannuation Funds of Australia, said efficient advice would be key to the success of such a system and that it should be delivered in such a way that members could self-guide themselves to a decision on how to choose their optimal mix of retirement products and investments.
Vamos predicted that the report’s recommendation for any default retirement income product to contain a measure of longevity protection would attract a growing number of insurers to enter the Australian market.
As widely predicted the FSI report has recommended the removal of tax and administration barriers that impede the introduction of retirement income products such as deferred lifetime annuities.
The government will tackle this issue in 2015 when the outcome of its Retirement Income discussion paper is published.
