Towers Watson has welcomed the Federal Government's proposed reforms on the tax treatment of deferred lifetime annuities (DLAs) but say further reforms are necessary to encourage people to adopt them.
Managing director for Towers Watson Australia, Andrew Boal said the reforms would encourage the take-up of DLAs. It was a "water-shed" moment for the Australian superannuation industry, he said.
However, the new tax concession would not immediately ramp up DLA adoption after 1 July 2014 because Australians had been reluctant to commit a high proportion of their retirement savings to other annuity products already available where payment begins on retirement, Boal said.
"The success of DLAs will depend not only on the announced tax concession, but there are a number of other regulatory changes required that we have also been discussing with government," he said.
Boal said further changes including amending the SIS Act to ensure that the deferral period does not exclude a DLA from being recognised as an income stream, and to remove the requirement for a surrender value to ensure DLAs were treated as insurance products rather than investment products.
He said current requirements included minimum draw downs when there would be no draw downs during the deferral period.
Boal said Towers Watson and other industry bodies such as The Actuaries Institute had advocated reform on DLAs because of the growing importance of retirement risks – longevity was the least understood.
Longevity had improved since the 1970s with the age pension now expected to cover longer periods of retirement, according to Towers Watson.
It said approximately 5.5 million Australians would reach 65 in the next 20 years and their combined superannuation assets would be about $1.6 trillion. It would raise questions for members and governments about how they retirees use their assets to gain a higher standard of living.
It was the superannuation industry's job to educate member's about the benefits of DLAs, Boal said.
