The social security settings for the comprehensive income products for retirement (CIPRs) or MyRetirement framework needs to be attractive enough to be an incentive for people to take up the products, according to experts.
Willis Towers Watson head of retirement solutions, Nick Callil, said there were very few markets where longevity or pooled mortality products had been taken up in great numbers without there being strong incentives or compulsion.
“For a deferred product you’d be looking for an exemption from an assets test in a deferral phase. There are products around where you pay a premium at aged 65 but the insurance payment doesn’t commence until age 85,” he said.
“In that interim period, because you don’t have access to funds, you’d be looking for the rules to say that you’re not asset tested on the amount you’ve contributed towards that insurance payment in those 20 years that are deferred.”
Callil pointed to the fact that when full or partial assets test exemptions for immediate annuities were removed by the government, the sales and take up of the products “fell off a cliff”.
For Association of Superannuation Funds of Australia’s (ASFA’s) director of policy, Fiona Galbraith, the social security setting should be some kind of discount on the assets or income test.
“Most people would be looking at the asset test. A bit like what they’ve done historically with other super account based streams which is to build in a discount to the extent to a capital sum toward a longevity component of the CIPR maybe only a percentage of that counts towards the assets test rather than the full 100 per cent,” Galbraith said.
She said as the target demographic for MyRetirement products were either part pensioners or people who would eventually become part pensioners, a more favourable treatment was needed in putting money into the longevity component.
“Something like a concession on how it is treated for social security for assets test age purposes particularly given that the way the longevity component works obviously has the element of either restricting access to capital and/or reducing death benefits,” she said.
“In exchange for the longevity protection and the higher income on it for the period of time they’re giving up some access to capital so members will need an incentive to do that.”
The Financial Services Council’s (FSC’s) senior policy manager for superannuation, Blake Briggs, said the tax and social security settings were necessary “hygiene factors” that needed to be addressed before the products came to market.
“The FSC supports neutrality between product categories so that consumers are not deterred from choosing CIPRs, but whether any favourable treatment is necessary to overcome behavioural biases still requires further consideration and debate within the industry,” he said.
“This question will not be answered until the final design of the CIPR regime becomes clearer.”
These points have been discussed in further detail in a feature article in Super Review’s upcoming July magazine.