The Federal Government has been told that its comprehensive income products in retirement (CIPR) framework falls short of what is necessary to achieve its stated objectives.
The Association of Superannuation Funds of Australia (ASFA) has used a submission to the Federal Treasury’s CIPR consultation process to point to what it sees as serious shortcomings in the framework outlined by the Government.
“… our overarching observation about the proposed CIPR framework is that – as currently designed – it is neither necessary nor sufficient to achieve its stated objectives,” the ASFA submission said. “There is the risk that a CIPRs framework will be designed that, rather than maximising member benefit, will see little take-up and fail to achieve the necessary scale or desired consumer outcomes.”
The ASFA submission has pointed out the degree to which superannuation funds have been able to offer income stream products in retirement since the inception of the current superannuation regime and the degree to which this was hampered by a range of legislative and other restrictions.
“What has mitigated against the offering of attractive income stream products in superannuation has not been the absence of a CIPR framework but instead has been attributable to:
- Restrictions on product design imposed by the pension standards in the Superannuation Industry (Supervision) Regulations 1994 (SIS regulations);
- The social security treatment of superannuation income streams and lump sums with respect to the Age Pension assets and income tests;
- The lack of any differential in the tax treatment for income streams and lump sums paid to members, which may otherwise have acted as an incentive to take an income stream;
- Issues with respect to the regulatory standards for the retention of capital/reserving required for some income streams with a longevity or market risk component;
- The relative immaturity of the superannuation system, with relatively low average account balances at retirement; and
- Finally – but by no means least – there are the not insignificant behavioural considerations. Historically there has been a lack of consumer take-up of income stream products by Australians.”