POWERED BY MOMENTUM MEDIA
Means-testing uncertainty still dogs annuities
The superannuation industry is still in need of clear direction on how longevity products will be treated with respect to the Age Pension means test, according to actuarial research house, Rice Warner.
In an analysis published this month, Rice Warner has pointed to the superannuation industry’s relatively slow take-up of annuity products, suggesting that retirees remain to be convinced that they will meet their stated objective.
“One of the difficulties is that the purchase of a longevity product does not increase value for a retiree,” the Rice Warner analysis said pointing to the firm’s modelling which shows that the present value of increased pension payments is more than offset by the reduction in the value of any benefit left behind on death (bequests).
“In addition, the long-term investment returns on longevity products are unattractive when compared with the investment pools of MySuper products which benefit from the equity risk premium,” it said. “Clearly, retirees (and their financial advisers) appear not to value the greater certainty of returns nor have they been convinced to live less frugally and draw down higher pensions.”
The analysis said that as longevity products could not be sold on merit, some industry participants had been lobbying to have preferential treatment of the products in the means-tests of the Age Pension, noting that in last year’s Budget, the government stated that it would address ‘superannuation regulations that restrict the development of new retirement income products and act as barriers to innovation’.
New regulations that came into force from July 2017 include a change in the tax treatment of deferred annuities and GSAs, which are now tax-free during the period of deferment after age 60.
Rice Warner said that another problem raised by the industry had been the absence of a clear direction on how longevity products would be treated for the means-tests of the Age Pension.
Recommended for you
A major super fund has defended its use of private markets in a submission to ASIC, asserting that appropriate governance and information-sharing practices are present in both public and private markets.
A member body representing some prominent wealth managers is concerned super funds’ dominance is sidelining small companies in capital markets.
Earlier this month, several Australian superannuation funds fell victim to credential stuffing attacks, which saw a small number of members lose more than $500,000.
Small- to medium-sized funds have become collateral damage in an "imperfect" model for super industry levies, a financial institution has said.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
93.34 3 y p.a(%)
2
Global X GlobalX FANG+ ETF
37.15 3 y p.a(%)
3
GAM LSA Private Shares AU I
33.96 3 y p.a(%)
4
Fidante Credit Suisse Global Private Equity
29.68 3 y p.a(%)
5
Plato Global Alpha A
28.73 3 y p.a(%)
