Australia’s largest life insurer TAL is urging two Commonwealth Government-initiated inquiries to improve regulation of annuity ‘income’ products to help redress the massive retirement income shortfall facing Australia.
In a submission to the Australian Government’s Review of Retirement Income Stream Regulation, TAL calls for retirement income regulations to enable greater product choice and income certainty for Australians to better meet their retirement income needs.
TAL has already called for greater use of annuities via its first and second submissions to the Financial System Inquiry, which itself called for life insurers to play a bigger role in helping to solve the nation’s looming retirement income deficit.
TAL Group CEO Jim Minto said: “We strongly support the recognition by these two inquiries of the role that life insurers could have in combatting the current and future national retirement income shortfall, and the need to provide the regulatory settings to enable this to happen.”
In terms of the nation’s retirement income shortfall, called ‘longevity risk’ because people outlive their savings, both the FSI Interim Report and the Review of Retirement Income Stream Regulation discussion paper by Treasury note that deferred lifetime annuities (DLAs) – and all types of annuities – that can legally be provided only by life insurers could be part of the solution.
However, there are a number of regulatory barriers currently restricting the availability of relevant and appropriate income stream products in the Australian market by life insurers.
“TAL strongly supports the provision of incentives to encourage retirees to purchase retirement income products, particularly lifetime and deferred annuities. Annuity income can help retirees plan with greater certainty and flexibility to manage their financial affairs, thus reducing the potential burden on Government funded pensions,” Mr Minto said.
“The main disincentive for consumers is that DLAs do not initially have the same tax treatment that other superannuation and retirement products do. Retirees don’t understand why they should have to pay more tax for DLAs. Other regulatory barriers inhibit life insurers from developing innovative annuity products because of the heavy regulatory cost they attract.”
Given the average person underestimates their own longevity, there is a great need for longevity insurance via deferred lifetime annuities – which for an initial payment provides a guaranteed income stream for the rest of the holder’s life – whether purchased with superannuation or non-super assets.
The FSI’s Interim Report noted that according to the OECD, the size of Australia’s annuity market is only around 0.3 per cent of GDP (Gross Domestic Product), compared with 28.8 per cent in Japan, 15.4 per cent in the United States, and more than 40 per cent of GDP in some European countries. The report also stated that the Government bears much of Australia’s longevity risk by providing the Age Pension, which contributes to the low demand for longevity-protected income products.
Inquiry Chair David Murray in his Interim Report speech said: “The interim report observes that the retirement phase of superannuation is under-developed and does not meet the needs of many retirees to manage longevity risk. We think there is an opportunity for innovation to deliver better outcomes for retirees and better meet the needs of an ageing population.”
Mr Minto said: “TAL could not agree more.”
Stuart Snell 02 9448 9879/0417 921 235 firstname.lastname@example.org
About TAL: The specialist voice of life insurance in Australia
TAL is Australia’s largest life insurance company with leading competitive offerings in each of its core distribution channels: direct to customers; through financial advisers; and via group and workplace superannuation schemes. With in-force premiums of $2.2 billion, TAL provides more life insurance solutions to Australians than any other insurer. TAL is owned by The Dai-ichi Life Insurance Company, Limited, one of Japan’s largest life insurers.