A Federal Government-backed proposal requiring all super trustees to pre-select a comprehensive income product for retirement (CIPR) for members should be implemented in the next two years, according to Mercer.
In welcoming the Government’s support of the Financial System Inquiry (FSI) CIPR recommendation, Mercer cautions for the need to prioritise its implementation to develop a stronger focus on income products and address longevity risk in Australia’s aging population.
Ben Walsh, Mercer’s Managing Director and Pacific Market Leader, said, “The primary objective of superannuation should be to provide lifetime incomes during the retirement years.
“As yesterday’s launch of the 2015 Melbourne Mercer Global Pension Index highlighted, requiring a portion of retirement benefits to be taken as an income stream is critical to improving retirement outcomes for Australians.
“Australians are living longer which significantly increases longevity risk - the risk of people out-living their retirement savings. The solution requires some pooling so that those who live a bit longer receive lifetime benefits.
“For too long there has been an undue emphasis on the accumulation phase as opposed to the retirement phase, and the superannuation industry has grappled with how to offer members simple, affordable and flexible longevity risk protection.
“The Government’s support for the CIPR recommendation is encouraging, and we believe two years is an achievable timeline to establish the legislative and industry framework to implement this important proposal,” Mr Walsh added.
The Government has indicated that CIPRs should enable retirees to balance the needs of providing adequate income, managing longevity risk and providing flexibility.
With these same objectives in mind, Mercer developed LifetimePlus, a world-first longevity pooled investment fund within an account-based pension, which is now being offered to super fund clients.
“The superannuation industry stands ready with the expertise and products to provide Australians more affordable, flexible and sustainable solutions to longevity risk.
“Mercer, in our response to the FSI report, has provided a detailed view on the key considerations of implementing a CIPR framework and is confident the super industry is well placed to work with the Government on progressing with this proposal.”
Other key points of Mercer’s response to the FSI final report include:
- The need to establish, and enshrine in legislation, objectives of the superannuation industry, to create a clear vision to benchmark future policies – and reduce the chances of inappropriate legislative changes in the future
- Support for ability for all employees to choose a fund for their superannuation guarantee contributions, subject to a transition period
Mercer’s full response to the FSI’s final report can be seen on the Mercer website.
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in more than 40 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com.au Follow Mercer on Twitter @MercerAu