Super system needs ‘profound change’

Making it compulsory for super trustees to offer products that provide longevity risk cover – that is, protection against outliving your savings – would help Australians increase their retirement income by as much as 15 per cent to 30 per cent, says actuary Anthony Asher. 

“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],” Mr Asher said. “While not likely to be popular, there is potentially a case for compulsory allocation of some of members’ superannuation to lifetime income streams in retirement.

“A minimum requirement should be that super funds offer members an appropriate longevity protection product for all or part of their balances, and carefully and fairly set out the advantages and disadvantages of different choices, before paying any benefits at retirement.”

Super funds have so far been reluctant to offer products with longevity risk cover due concerns that lack of demand would lead to scale risks or result in members not having access to the lump sums needed for large purchases or transitioning into aged care. 

Some of these concerns could be addressed by allowing super funds to offer more comprehensive advice to their members. Mr Asher notes that members are “poorly served” by the current system, which often prevents funds from offering any kind of advice. 

“Allowing superannuation funds to safely provide a wider range of personalised support is important. This could include personalised education,” Mr Asher said. “Research shows that superannuation funds are a trusted source of information and help. Indeed, thought should be given as to ways in which the current position should be reversed.

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

Mr Asher suggests that these changes could be assisted by creating “significantly more prescriptive guidelines” on what a retirement income strategy looks like for different members, similar to how ASIC provides sample statements of advice for advisers to refer to.