Australia’s superannuation system is wrong in handing lump sums to Australians without protecting them for the whole of life, industry veteran David Orford says.

The Financial Synergy founder, who sold to IRESS for $90 million in 2016, is using some of the $73 million he gained from his 81 per cent stake in the software company to set up three philanthropic scholarships and embark on a longevity product campaign.

With a new company called Optimum Pensions, the actuary launched Real Lifetime Pensions in Melbourne late last year, a white-label product that offers super fund members an inflation-based income to maintain standards of living.

“My primary objective is doing something good for the world and the best thing to do for Australia is to convert it into a pension mentality,” Orford said. “We have a lump-sum mentality now. The account-based pension is, in fact, a lump sum taken in installments, but the income, once it gets to life expectancy, declines in real terms.

“It’s not good for our country, it’s not good for anybody in Australia. We need to change the attitudes. Hence the study.”

He said Optimum Pensions was partnering with reinsurer Hannover Re and talking to seven selected life insurers and super funds about an account-based pension with longevity protection.

Orford first became aware of Australia’s different approach to retirement in 1971, working for Mercer in Canada.

“In their mindset, you would only pay a pension and in the Australian mindset you would only pay a lump sum,” he said. “Which is right? In my mind, it’s pensions,” Orford said.

Orford’s next goal is a three-year study to determine Australians’ mortality rates; however, this effort seems to have stalled after Rice Warner was engaged to request the data from all insurers, including the biggest players – Challenger, AMP and CommInsure.

“Looks like it’s going to end in a damned squib because Challenger won’t supply the data, nor will AMP,” he said. “Unless we have mortality rates, the industry can’t start on its longevity journey.”

He said Australians who took out longevity insurance were self-selecting because they were long livers but that all Australians needed to be covered.

Australia’s super and pension systems are not sustainable and must change, Orford said.

“Some of the things in Australia we are doing that are dumb, if you like, is we pay pensions and they’re tax free. Well, nobody in the world does that,” he said. “You get a deduction for contributions, you pay no tax on investment earnings and then you pay tax on your pension when you get it. That’s the way it is in most countries.

“We’re different. We only pay 15 per cent contributions tax. So I can pay a contribution now, pay 15 tax and get it out tax free tomorrow. That’s pretty stupid, really. We shouldn’t be doing it.”

Orford spoke with Conexus Financial chief executive Colin Tate at the 2018 Investment Magazine Post Retirement Conference, held in Sydney on March 20.

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