The FSI report, released on Sunday, also recommended that impediments to the development of retirement income products be removed.
In a statement released yesterday, Challenger chief executive Brian Benari described the FSI recommendation as a "clarion call for real change" that would allay retiree's "justifiable fear of outliving their savings".
"As observed by the FSI, the account-based pensions [APBs] which currently account for 94 per cent of the retirement income stream market don’t protect retirees against outliving their savings, and should be paired with longevity risk products," Mr Benari said.
"We strongly endorse the FSI’s idea for trustees to pre-select products as a practical remedy to the systemic and acute over-reliance on ABPs as a singular retirement solution, and agree with the FSI’s view that their 'dominance' can be explained 'in part, [by] behavioural biases'," he said.
Mr Benari pointed Challenger's partnership with VicSuper as an example of a life insurer working with a superannuation fund – a recommendation that is contained in the FSI report.
Challenger was an "early advocate" of income layering using annuities and account-based pensions, he added.
"Today’s partial annuitisation strategies already reflect the prescribed requirements of a pre-elected comprehensive income product for retirement [CIPR], inferring widespread adoption of retirement income model portfolios similar to those developed recently by Mercer and Zenith," Mr Benari said.
"These strategies combine annuities with account-based pensions to deliver longevity protection and income certainty," he said.
"Moreover, because annuities are capital-backed, prudentially regulated hard promises, they fully meet the FSI’s prescribed requirements around income and longevity protection. Super fund trustees selecting annuities to comply with CIPR requirements wouldn’t be leaving anything to chance," Mr Benari said.
"Members would receive guaranteed outcomes from today rather than just hoping to receive best efforts, or ‘expected outcomes’ in the distant future," he said.
