Inquiries put retirement income products up for debate

The Financial System Inquiry and Government Pension Review have the potential to open up the availability of “relevant and appropriate” retirement income products, Jordan George, Senior Manager, Technical & Policy, of the SMSF Professionals’ Association of Australia (SPAA), told the organisation’s Technical Conference in Sydney today.

The FSI, in its interim report, said the retirement phase of superannuation was underdeveloped and did not meet the risk management needs of many retirees.

“This is an assessment of the current state of retirement income products that SPAA agrees with and we will be working with both inquiries to achieve a better policy outcome for retirees.

“It is important that the FSI’s first consideration is the overall framework of our retirement system rather than just a focus on products. In this respect SPAA contends the SMSF sector is demonstrating just how well the Australian retirement system is working and meeting Government objectives by successfully providing income streams to retirees and is leading the industry in doing so.

“When it’s considered that about 35% of SMSF trustees are in the pension phase, and 64% of retirement phase assets are held by SMSFs, then it is obvious why this is an issue of paramount importance to SPAA.”

George said the FSI was examining the option of providing policy incentives to encourage retirees to buy retirement income products that help manage longevity and other risks.

“Other policies they have flagged include the Introduction of a default option for how individuals take their retirement benefits; mandate the use of particular retirement income products; the role of Government long-term and inflation-linked bonds; and removing legislative impediments to development of annuity products.

“What the FSI is saying is that an important consideration is to have a more flexible, principles-based approach to determining the eligibility of retirement income products for tax concessions and social security concessions, as well as examining the capacity of the private sector capacity to provide the right solutions.

“When coupled with the Government Review of Retirement Income Products, which will look at the regulatory barriers restricting the availability of relevant and appropriate retirement income stream products and the minimum payment requirement for account-based pensions, it is clearly an issue that the Government understands has to be addressed.

“SPAA will prepare detailed submissions for both inquiries. But the organisation’s starting point will be the principle that whatever policy decisions are reached they must be based on people on not being compelled to adopt a defined strategy,” he said.