How to boost retiree savings by 30%

By Grace Ormsby

July 09 2020
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More direct government intervention may be required to better protect, or even bolster, the retirement savings of older Australians, an academic has said.

Academic actuary and associate professor at UNSW business school, Anthony Asher, has penned a dialogue paper in which he raised the idea that there’s a case to be made for compulsory longevity risk management to be added to superannuation products.

The paper, titled “Developing the Retirement Income Framework”, highlights that if the government were to make it compulsory for superannuation trustees to at least offer products to consumers that provide longevity risk cover, Australians could potentially increase their retirement income by as much as 15 to 30 per cent.

According to Mr 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.”

While they may not be popular, the academic argued that “there is potentially a case for compulsory partial allocation of some members’ superannuation to lifetime income stream products in retirement”.

In the report, the associate professor iterated that modelling shows a 15 per cent to 30 per cent increase in retirement income through use of an appropriate allocation to
suitable lifetime income streams.

He explained that without such products, retirees will either leave significant bequests or run out of money in later life and noted the "particular need to protect longer living partners
with lower personal balances".

He believes that a more efficient management of longevity risk could result in higher living standards in retirement and would better align the superannuation system with its objectives.

It would also help reduce retiree stress around whether or not their savings will last.

Alongside such products, Mr Asher is also an advocate for the provision of low-cost financial advice to help improve the living standards of older Australians.

He highlighted how a new framework could be incorporated into the superannuation system that would require all trustees to include a covenant that would require the offering of “longevity risk-style products and affordable advice to members”.

This could work in a similar way to the advent of income protection insurance and life insurance products that are embedded into super products.

With retirees predominantly just having needs that fall into five general requirements, the associate professor said trustees should be able to offer a range of products to meet those needs and provide advice based on general expectations.

Those five requirements are: a high income, an income that lasts (including for a spouse), a stable annual income, access to enough capital, and a desire to leave a bequest.

At a minimum, the academic has urged funds to consider offering members an appropriate longevity protection product for all or part of their balance, setting out pros and cons, before paying any benefits out to an individual on their retirement.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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Retirement