FSI’s super recommendations a ‘clarion call for change’
The Financial System Inquiry (FSI's) final report's recommendation that superannuation fund trustees be required to provide longevity protection represents a "retirement revolution", according to Challenger chief executive, Brian Benari.
Under the FSI's recommendation 11, super trustees would be required to pre-select a comprehensive income protection product to members' retirements (CIPR) to insure against them outliving their superannuation savings.
Welcoming the FSI's recommendation, Benari said that it was a "clarion call for real change, change that's needed to address retirees' justifiable fear of outliving their savings".
"We strongly endorse the FSI's idea for trustees to pre-select products as a practical remedy to the systemic and acute over-reliance on account-based pensions as a singular retirement solution, and agree with the FSI's view that their ‘dominance' can be explained in part, [by] behavioural biases," Benari said.
"Notably, the FSI suggests that super funds partner with life insurers to provide longevity protection, citing guaranteed annuities as a cornerstone risk management product… such partnerships are already on super funds' radar, and are likely to increase in number in light of the FSI's recommendations."
Benari said that partially annuitized strategies "already reflect the prescribed requirements of a pre-elected CIPR", and combined with account-based pensions would deliver longevity protection and income certainty.
"Moreover, because annuities are capital-backed, prudentially regulated hard promises, they fully meet the FSI's prescribed requirements around income and longevity protection," he said.
"Super fund trustees selecting annuities to comply with CIPR requirements wouldn't be leaving anything to chance.
"Members would receive guaranteed outcomes from today rather than just hoping to receive best-efforts, or ‘expected outcomes' in the distant future."
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