The Federal Government has been warned against taking a prescriptive approach to the rules around comprehensive income products for retirement (CIPRs).
The Actuaries Institute has used its submission to the Treasury dealing with the development of a framework for CIPRs, to warn against a one size fits all approach.
It said there were benefits in avoiding a prescriptive approach because the legislative rules around post-retirement products were immature.
The submission said the government had to resolve the treatment of income products under the assets test, and allow funds to offer flexible products that meet retirees’ individual needs.
“The right approach is to start with a framework and then let this drive the products,” it said. “The framework must meet the government’s stated aims and address members’ needs and interests, including whether longevity protection products meet individual fund members’ requirements.”
Commenting on the submission, Actuaries Institute president, Jenny Lyon said there should be scope for the policy approach to be reviewed as the product landscape evolved.
“It should not be compulsory to offer a particular type of retirement income product until we see how the market develops,” Lyon said. “Instead, an ‘if not why not’ regime could be introduced, at least initially, where funds are required to justify the appropriateness of their retirement income products for its members.”
The submission said every superannuation fund should be required to have a retirement income governance framework, in the same way funds have guidance for investment and insurance noting that the framework should set out how trustees intend to guide their members at retirement, including the social security implications for members with low account balances and members in poor health.
“Some funds may develop their own longevity protection products, but others may offer their own account based pension and guide members to longevity protection products from third parties,” Lyon said.
“There are benefits in allowing a less prescriptive approach because the current market and legislative rules around post-retirement products are immature,” she said. “We also look forward to seeing clarity around how these products will be means tested.”
