Annuities compulsion could enhance Age Pension
Challenger Group has used its submission to the Henry Tax Review to urge the Government to require Australian retirees to take a proportion of their retirement savings as either an immediate or deferred lifetime annuity.
The lengthy submission suggests that such arrangements would provide at least partial solutions to the current deficiencies in the retirement benefit draw-down arrangements and pointed out that one of the characteristics of annuities was that they control the rate of drawings.
“Lifetime annuities eliminate the possibility of exhaustion of private retirement benefits so retirees are guaranteed an income in excess of the Age Pension over the full course of their retirement,” the submission said.
The Challenger submission contains modelling that suggests the long-term implications for the Government’s budget position indicates compelling retirees to take 30 per cent of their retirement benefits either as an immediate or deferred annuity would reduce the cost of the Age Pension by between 0 and 0.2 per cent from a baseline cost of 3.9 per cent of Gross Domestic Product a year.
It said this represented a reduction of up to five per cent in total Age Pension costs.
The Henry Tax Review recommendations outlined with the release of the May Budget, made no reference to the benefits of compelling retirees towards annuities.
AUTHOR
Mike Taylor
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