ASFA urges against CIPR longevity component

There should be no compulsion for superannuation funds to develop Comprehensive Income Products in Retirement (CIPRs) that contain a longevity component, according to the Association of Superannuation Funds of Australia (ASFA).

In a submission responding to Treasury’s Retirement Income Covenant Position Paper, ASFA said it did not support compulsion for trustees to develop and offer a CIPR that contained a longevity component.

“Given that CIPRs will be ‘opt-in’ for individuals, we do not believe there will be sufficient member demand to make offering a CIPR with a longevity component a cost effective, viable option for many superannuation funds,” ASFA said.

“ASFA believes there are considerable risks in mandating the development and wide-spread offering of a ‘mass-customised’ CIPR product:

· a CIPR may not be appropriate for a large portion of members, and so the trustee would not be acting in the best interests of those members to offer it to them

· allowing three CIPRs may not be sufficient to mitigate the risk that a product is not suitable for a number of members

· the likely low, at least initially, demand will result in products that are not cost effective to operate, and that ultimately will become legacy products.

On the general question of longevity products, ASFA argued that a paradigm shift would need to occur and until this happened there was likely to be low demand for a product with a longevity component.

“Accordingly, we believe that, in the short-term, the focus should be on trustees developing a retirement income strategy and framework for their fund and supporting their members to develop a personal retirement income strategy suited to their circumstances, needs and objectives, that may include the acquisition of one or more products with a longevity component,” it said.