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CIPRs should be a retention tool: Optimum

By Tim Stewart
4 minute read

Super funds can easily convert their account-based pensions into longevity products which will help them retain both FUM and members, says Optimum Pensions.

Since he sold Financial Synergy to IRESS for $90 million in September 2016, David Orford has been combining a focus on philanthropy with his latest venture: Optimum Pensions.

Optimum has built what it calls a Real Lifetime Pension (RLP) in partnership with reinsurer Hannover Re to satisfy the government’s requirement for comprehensive income products for retirement (CIPRs).

The Minister for Revenue and Financial Services has embraced the concept of CIPRs, which were first laid out in David Murray’s Financial System Inquiry.


The government made its position on retirement income clear in its Retirement Income Covenant in May, stating that trustees "should assist members to meet their retirement income objectives throughout retirement by developing a retirement income strategy for members".

Under Optimum’s arrangement with Hannover Re, super funds will be able to use their existing account-based pension to create a longevity product – as required under the government’s Retirement Income Framework.

The RLP is a pooled market-based annuity that uses reinsurance to provide an income for life to superannuation members.

Accounts of members who die earlier than their life expectancy are returned to the pool, which in turn provides income to members who live past 100.

Speaking to InvestorDaily, Mr Orford differentiated his product from Challenger’s capital guaranteed annuities, noting that the two companies are operating in “different market segments”.

The selling point for super funds, he said, is that under an RLP the fund retains the assets rather than losing them (and potentially the member) to a life insurance company.

“If it was co-insurance the assets would go to somebody else. But with a risk premium [product] the [super] funds keep the assets – which is what they want,” Mr Orford said.

“This is a bit of a new world for the super funds. Some of them we talk to they lose most of their retirees to retail funds. Why do you let that happen?” he asked.

“You should be talking to them before they get to retirement and somehow the retail funds – the planners – get in there and take them away.”

The government is planning to force super funds to offer a CIPR product, but Mr Orford goes a step further by suggesting individual members should be subject to some level of compulsion as well.

About 10 per cent of a retirement benefit should be required to be taken as a CIPR, he said (Rice Warner has advocated for 15 per cent).

“We're going into a voluntary purpose environment where people's mortality rates will be low, because it will be the ones who know they're going to live a long time who will buy them,” Mr Orford said.

“But if you got everybody to buy them, the price would drop by perhaps 10-20 per cent,” he said.

There is widespread opposition to individual compulsion to purchase annuities in Australia, and the UK government tried and failed to make them compulsory.

But considering that a large proportion of every Australia’s superannuation benefit comes courtesy of tax concessions, there is a moral case for mandating a similar amount be annuitised, Mr Orford said.

“The government could say: ‘That's our bit, so let's make [the compulsory part] 10 per cent,” he said.