Rice Warner wrestles with longevity risk

28 August 2014

| By Priya |

Research consultancy firm Rice Warner says it has the "first comprehensive solution" to Australia's retirement income problem.

However, Challenger says its proposal is nothing new.

The Rice Warner Retirement Income Solution has been launched as the firm's answer to what they believe is "lags when it comes to an effective and comprehensive retirement incomes system".

"Superannuation fund members are currently given no default option for managing this lump sum. We believe there are better ways to approach this, and have devised what we think is the first comprehensive solution," Rice Warner CEO Michael Rice said.

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The Rice Warner Retirement Income Solution has been launched as the firm's answer to this problem.

"Rice Warner believes the essential solution is to separate the money needed for any lump sum at retirement and to invest the balance long-term to provide inflation and longevity protection," said deputy CEO Melissa Fuller.

The solution converts an account-based pension to a distributing trust so memembers can derive income from stable fund earnings. Meanwhile capital is projected to grow in real terms. Market volatility risk is reduced, as the member is not spending their capital.

However, in response, Challenger says the issues have already been raised.

In a statement the company said: "The failure of non-guaranteed products in retirement is the very reason why the FSI has floated the idea of defaulting a portion of super into annuities. So you could say the horse has already bolted on the issue of non-commutability. It's required for effective longevity pooling and is an integrity measure to prevent the default product being used for tax deferral and estate planning purposes instead of retirement income.

"Besides, people are locked into paying 12 per cent of their salary into super. The key to Michael's concern is in adequate member communication, which the industry takes very seriously."

Rice Warner deputy CEO Melissa Fuller stated the firm has received interest from the industry for its new product.

"We've received keen interest from some leading superannuation funds about implementing the Rice Warner Retirement Incomes Solution."

"We look forward to continuing our contribution to the debate in Australia, particularly as these issues become ever more prevalent in the future planning for the national interest."