Developing the retirement income framework

Earlier this month, the Actuaries Institute released another publication in its Dialogue series – Developing the retirement income framework. Written by Anthony Asher, Convenor of the Retirement Incomes Working Group (RIWG), the Dialogue explores the case to be made for a compulsory longevity risk management element to be added to superannuation products.

Prior to the launch of the Dialogue paper, Anthony Asher, Convenor of the RIWG, joined Jim Hennington, who is also a member of the RIWG, on the Actuaries Institute podcast to discuss the key points and recommendations from the Dialogue paper.

Download the Dialogue Paper, listen to the podcast , read the transcript, or keep reading for a short  summary of the discussion.

Listen to “Developing the retirement income framework” on Spreaker.

The Dialogue endorses the findings of the Financial System Inquiry – that having products that more efficiently manage longevity risk will result in higher living standards in retirement and better aligns the superannuation system with its objectives.

The RIWG’s recommendations come after Treasury issued a Retirement Income Covenant Position Paper in May 2018, which explained the Government’s commitment to introducing a retirement income covenant as part of its retirement income framework.

In order to act on the key findings of the Dialogue Paper, Treasury needs to proceed with actioning the retirement income covenant.

“This would require trustees to have in place a balanced retirement income portfolio, which would include the option of a lifetime annuity/pension, which currently, very few have,” Anthony said.

“The second thing is that ASIC really needs to look carefully at the type of advice that is given. We’ve identified the fact that advice needs to be made cheaper, and automated to basically present people with their options, and gets them to understand what the issues are.

“The current situation is that the trustee is effectively saying, ‘Look, take a lump sum or take an account-based pension and draw it down because that’s what everyone else does, and we don’t make any comment.’ But trustees are making a comment because they are the experts and they are effectively saying, ‘Take the account-based pension, that’s appropriate’. So, we need to shift the onus, and that requires activity from ASIC and from Treasury to say, ‘In fact, if you don’t give balanced advice, you are actually at risk.”

Anthony’s drive to conduct this research has stemmed from his long-term interest in annuities, an area he has been involved in since the 1970s.

“I just loved the mathematics (annuities) when I did it in the 70s. In the 80s, I was an actuary of the Prudential in South Africa, and we introduced the with-profit annuity, which was the first with-profit annuity that was permitted to be offered to retail customers in South Africa,” Anthony explained.

“And so, when I came here (Australia in 2003) and discovered there were almost no annuities, it’s been one of the things on my agenda since well, for a long time.”

The Dialogue is a series of papers written by actuaries and published by the Actuaries Institute. The papers aim to stimulate discussion on important emerging issues.

Listen to the podcast and download the Dialogue paper.

CPD: Actuaries Institute Members can claim two CPD points for every podcast listened to.