POWERED BY MOMENTUM MEDIA
US report highlights need for annuitisation
A US report into Australia's retirement system has cited weak annuity markets as one of its failings.
The Centre for Retirement Research at Boston College assessed Australia's superannuation system to gauge what lessons could be learnt and applied to the pension system in the US.
Statistics showed that half of those who accessed their super fund in 2012 received a lump sum distribution, while 98 per cent of the rest chose a phased withdrawal product over an annuity the centre said.
"This lack of annuitisation makes older Australians heavily exposed to longevity, inflation and investment risks," it said.
Australia needed reforms that encouraged innovation in annuity product development to reduce the burden on the age pension by reducing people's ability to "double dip", according to the report.
Recent proposals to reform tax concessions for deferred lifetime annuities will remove the main hurdle, according to Towers Watson's Australia managing director Andrew Boal and The Actuaries Institute's chief executive Melinda Howes.
The Federal Government announced earlier this month it planned to extend concessional tax to deferred lifetime annuity products.
Boston College said the propensity for Australians to ‘double dip' due to the means-tested age pension was a system flaw and that could be exacerbated by increasing super balances, despite the planned increase to eligibility ages.
Low levels of financial literacy were also cited as an issue. Although the majority of default investment options were balanced mutual funds, it said a recent survey had found half of respondents equated that to risk-free assets or did not know.
The report found that Australia's emphasis on defaults ensured default guidelines had a more far-reaching impact than in the US.
Although both countries had introduced a ban on conflicted remuneration and had restricted compensation structures, Australia was actively promoting the availability of advice along with standardised information on risks and fees, and had expanded ‘simple advice', the report said.
AUTHOR
Staff Writer
Money Management staff writers are writers who contribute to the website from time to time. If you would like to discuss the content contained within this article please contact us.
Recommended for you
Taking a purely passive investment approach is leaving many investors at risk of heightened valuation risks, Allan Gray and Orbis Investments have cautioned.
Annual trimmed mean inflation saw a slight spike in April, according to data from the ABS.
Active managers say that today’s market volatility and dislocation are creating a fertile ground for selective stock picking, reinforcing their case against so-called “closet indexers”.
Platform leaders admit they’re operating under constant pressure and a persistent “state of paranoia” to keep pace with technology that is reshaping how clients access and interact with their wealth.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
92.15 3 y p.a(%)
2
Global X 21Shares Bitcoin ETF
53.24 3 y p.a(%)
3
Global X GlobalX FANG+ ETF
43.15 3 y p.a(%)
4
DomaCom Shoreline North Coogee
36.26 3 y p.a(%)
5
GAM LSA Private Shares AU I
35.87 3 y p.a(%)
