Sustainable and flexible reform is needed to safeguard the Australian retirement income system and mitigate longevity risk, says the Actuaries Institute.
In a report titled The Challenge of Longevity Risk: Making Retirement Income Last a Lifetime – prepared by the Actuaries Institute Australia, the American Academy of Actuaries, and the Institute and Faculty of Actuaries in the UK – said flexible regulatory framework needs to be introduced.
Actuaries Institute president Estelle Pearson said: “To its credit, the Australian government has recently committed to far-reaching reforms of our superannuation and pension system.
“While these measures are not yet enacted or indeed spelt out in significant detail, there is now a framework in place to correct what needs to be fixed and to improve what needs to work better."
Ms Pearson said the federal government’s response to the Financial System Inquiry (FSI) was significant, particularly its commitment to defining an objective for the super system in legislation.
According to Ms Pearson, the government’s commitment to assessing the appeal of “intelligent default” products for retirees is also notable.
“The introduction of these intelligent default products will provide greater income security and protection for many retirees who now face the prospect of outliving their savings,” she said.
The report outlined five principles needed to manage longevity risk. These include adequacy, information, flexibility, equity and sustainability.
Regarding flexibility, the report said it is essential that regulation be flexible enough to reflect individuals’ different retirement needs. It should also reflect their varying capacity to exercise choice.
"A flexible regulatory framework should also support innovation," the report said.
"[It] should foster the balance between social policy objectives and cost of compliance that will ultimately fall upon the consumer."
The report said innovation by product providers will allow consumers to select appropriate solutions that reflect their individual needs and therefore help to achieve better retirement income solutions.
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