Towers Watson has welcomed reforms to the tax treatment of deferred lifetime annuities but say that further reforms are necessary for the market to be successful.
Managing director for Towers Watson Australia, Andrew Boal said the proposed reforms would encourage the take-up of deferred lifetime annuities (DLAs) and represented a "water-shed" moment for the Australian superannuation industry.
Boal said Towers Watson along with other industry bodies such as The Actuaries Institute had advocated the change because of the growing importance of retirement risks.
Towers Watson identified longevity as the least understood of retiree risks.
Longevity had improved since the 1970s with the age pension now expected to cover longer periods of retirement.
Approximately 5.5 million Australians will reach 65 in the next 20 years and hold combined superannuation assets of about $1.6 trillion which raised questions for members and governments about how they use their assets in retirement to gain a higher standard of living.
Despite the new tax concession, Boal said it would not lead to an immediate explosion in the take-up of DLAs after 1 July 2014 because Australians had been reluct6ajnt to commit a high proportion of their retirement savings to other annuity products already available where payment begins on retirement.
"Although this is changing as the importance of longevity risk gradually becomes clearer," he said.
"The success of DLAs will depend not only on the announced tax concession, but there are a number of other regulatory changes required that we have also been discussing with government."
It was the superannuation idnustry's job to educate member's about the benefits of DLAs, according to Boal. By allocating a small portion of a retiree's super to purchasing a DLA, they could ensure a secure level of income later in life.
