Call for mandatory longevity risk obligation

Longevity risk

Superannuation trustees should be obligated to include products to address longevity risk for members, a dialogue paper has suggested.

A university professor has called on the federal government to change the current retirement savings framework and have it include an obligation for superannuation fund trustees to include a longevity-based product for members in retirement.

The suggestion has been made by UNSW Business School associate professor Anthony Asher in a dialogue paper he has written, called “Developing the Retirement Income Framework”, in which he argues higher living standards in retirement and a better alignment with the objectives of the superannuation system can be achieved through products that help manage longevity risk.

To this end, Asher calculates Australians could experience a boost of between 15 per cent and 30 per cent if a requirement for superannuation trustees to offer products addressing longevity risk is introduced.

The paper suggests the new obligations for super fund trustees could be implemented in the same fashion as their requirement to offer insurance products for their members. Asher acknowledged longevity risk products may not be applicable for members with low balances.

“It seems clear that more direct government intervention may be required – just like the introduction of the superannuation guarantee, MySuper and even account-based pensions,” Asher said in the paper.

“While not likely to be popular, there is potentially a case for compulsory partial allocation of some members’ superannuation to lifetime income stream products in retirement.”

In making the recommendation, he identified five general requirements retirees wanted from their savings and that a range of longevity-based products could be developed to meet these needs. The five priorities for retired individuals are to have a high income, an income that lasts for their lifetime and their spouse’s lifetime, a stable income, access to a sufficient amount of capital and the ability to leave a bequest.

“Members and their beneficiaries are prejudiced by the absence of options to obtain suitable income stream products and trustees should be at risk if they fail to make such an option salient,” the paper said.

Asher also called for the imposition of an obligation on super fund trustees to provide retirees with greater levels of low-cost financial advice and suggested the ATO share some of its retirement data to help facilitate this initiative.

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