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Reviews do almost enough to address longevity risk
Recommendations arising from the Henry and Cooper reviews go a long way to addressing the longevity risk of Australian retirees but may also have missed an opportunity to make further improvements, according to two life risk specialists speaking at the Financial Services Council conference in Melbourne on Thursday.
The director of Macquarie’s longevity solutions team, Andrew Robertson, said the Henry Review might have focused too much on trying to get retirement income adequacy up for low income earners at the expense of implementing a system that could be a viable, sustainable longevity supporting system for higher income earners.
“It would have been interesting to see some ideas around releasing some of the equity in the home through downsizing at retirement age,” he said.
Opening a window for 55 to 70 year old baby boomer retirees to downsize their homes and contribute a third of the proceeds into super could be an option, he said.
The reviews may also have focused too much on super and social security without addressing other aspects of longevity risk, he said.
There is a failure within the current retirement income system and within longevity risk, both on the consumer side and supply side, with underinsurance a particular issue, according to Richard Howes, chief executive of life, Challenger Financial Services Group.
Recent life tables also don’t take into account future mortality improvements, so an average 65-year-old male with a current life expectancy of 86 will probably live until about 91, meaning retirees are likely to live longer than they expect, he said.
An ideal retirement income product would deliver a stable, secure retirement income over the length of retirement that is less exposed to market risk than current products, that is simple, low cost and flexible, Howes said.
“If I were to call for a policy change it would be to level the playing field and remove the legislative and prudential impediments to life officers offering deferred annuities,” he said.
AUTHOR
Mike Taylor
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