The lack of annuity products in the market reflects a lack of alignment between the needs of retirees and the efforts of superannuation funds to meet those needs, according to a superannuation and retirement expert.
Challenger retirement income chair Jeremy Cooper said the need for annuity products has been an issue identified in a number of reviews, including the recent Retirement Income Review (RIR), but no products have been brought to the table.
Speaking during an Association of Superannuation Funds of Australia webinar last Friday examining the final report of the RIR, and in response to a question about whether annuities will make a resurgence, Cooper said group self-annuitisation (GSA) products – which provide an annuity but don’t carry a capital guarantee – had been proposed in 2014 as part of the Financial System Inquiry (FSI).
“The GSA model emerged during the FSI process and … lots of funds have had discussions about this, and I have spoken to some of those, and people have been looking at these models,” Cooper said.
“In this country, however, no-one has put one on the table. It is a pity because the government actuary urged their use during the FSI, and here it is back on the table, and the industry is not aligned to this development.”
He said it was likely retirement income product providers were waiting to see what any potential legislation looked like before building products, creating a stand-off as they waited for the government to make decisions about the objective of the retirement income system.
The development of new annuities was necessary as current products were not meeting retiree needs and many were therefore not using their savings to fund their retirement, he said.
“It all comes back to choosing a product that gives a typical retiree more confidence to spend a proportion of their retirement savings in the knowledge that it will not run out and the account-based pension does not do that,” he noted.
“The statistic that is repeated is people are dying with substantial amounts. They have gone to all this trouble to build these sums and then are not using what it is meant for in retirement.
“This is why getting the objectives right is important, and the review did not outline the policy pieces needed to implement these objectives, but solving the issue of consumption in retirement would be an objective of the system.
“It should be about consumption smoothing so the standard of living is the same in retirement as when people were working.”
