The Australian Government has hosed down speculation that superannuation funds would be required to offer annuity-style products to guarantee income in retirement and ensure Australians spend and do not hoard their retirement savings.
This comes as Australia’s $4.1 trillion super industry prepares for a major structural shift over the next decade as more than 2.5 million people leave the workforce and move from the accumulation phase to the retirement phase of super.
A spokesman for Treasurer Jim Chalmers said no decisions had been made on draft principles the Government was developing to guide the industry in delivering high-quality income products that enhance financial security in retirement.
He commented on a report in the Australian Financial Review newspaper that major superannuation funds would guarantee an annual income for millions of retirees under a confidential proposal from the Government.
The AFR wrote Treasury officials had circulated proposed standards that would set a draw-down rate for retirees with more than $200,000 in their account to ensure a regular income for a fixed term or the rest of their life, including regular payments indexed to inflation or the financial performance of a pool of assets.
This means super funds would have to expand their retirement product range to include annuities, which provide a series of regular payments funded by a lump sum investment but are more commonly offered by insurance companies.
The Treasurer’s spokesman said Treasury routinely consults stakeholders to inform policy development and advice to Government and this was no different.
“No decisions have been made on the draft principles. The Government will consider Treasury’s advice and consult publicly before finalising them,” he said.
The reforms are aimed at addressing the emerging issue that many people die with most of their retirement wealth intact because they fear outliving their savings - a problem some address by purchasing annuities that guarantee annual incomes.
One super industry said although super funds had been “woeful” in developing useful retirement income strategies, they were reluctant to recommend annuities, because they were inflexible, expensive and carried the risk that the issuer would collapse.
“Why would the Government force a solution on retirees that very few are prepared to voluntarily choose?" he asked.
