INTHEBLACK September 2026 - Flipbook - Page 35
Many Australians face longevity
risks as rising life expectancy
increases pressure on
retirement savings.
Superannuation funds are now
expanding their retirement
income solutions, including
lifetime income products.
Research shows combining
annuities with account-based
pensions could improve income
sustainability for retirees.
Living longer should be good news, but for many Australians it comes
with a fear of not having enough money in retirement. Finally, more
superannuation funds are accelerating efforts to offer more sustainable
income solutions.
Words Tony Kaye
RETIREMENT SHOULD BE A TIME
of rest and relaxation. A well-earned break
after decades of diligence and dedication.
However, one of the biggest fears for many
Australians nearing and entering retirement
is longevity risk — the possibility of living
longer than expected and savings, pension
or other income streams not lasting until
the end of life.
Australians are typically retiring with more
money than ever thanks to a long-standing
superannuation regime, but on average they
are also living longer.
Treasury’s Intergenerational Report 2023
projects that Australia’s average life
expectancy will continue to steadily increase.
Over the next 40 years, the number of people
aged 65 and over is expected to more than
double, and the number aged 85 and over
will more than triple.
Generating a sustainable income stream
to fund rising living expenses and the cost
of aged care support later in life will be
a challenge for many.
MISSING ANNUITIES PRODUCTS
The Morrison government introduced
the Retirement Income Covenant, which
took effect from 1 July 2022. It codified
the obligation for superannuation trustees to
outline how they will assist their members
to balance maximising their retirement
income, manage risks and have flexible
access to savings. To date, the product
offerings from superannuation funds at
the retirement end of the spectrum have
largely been confined to transition to
retirement (TTR) and account-based
pension (ABP) products.
A key offering that has been missing
for a long time has been the widespread
availability of annuities products that provide
retirees with a guaranteed lifetime income
stream. Lifetime income products deliver
income for life paid out of pooled capital,
investment earnings and “mortality credits”,
which arise because the assets of those who
die are passed onto survivors in the pool.
To access these types of products,
currently most superannuation members
need to roll over their savings to external
annuity product providers.
Treasury guidance released in May 2026
provides a range of non-binding best practice
principles for superannuation funds that
include designing and offering lifetime
income products directly to their members.
The guidance says these products should
“have regard to member preferences around
expected risk and return, for example
managing longevity or investment risk”.
SOLVING ANNUITISATION
Professor Susan Thorp, head of banking
and finance at Monash Business School,
says Australia’s Retirement Income
Covenant and policy discussion has long
emphasised the importance of adding
a longevity insurance component to
retirement income products.
“If you are familiar with the research on
voluntary annuitisation around the globe, it
earned its own title, ‘the annuitisation puzzle’,
because voluntary annuitisation was rare and
occurring at very low rates,” Thorp says.
One of the concerns around annuities
is the prospect of forfeiting one’s invested
capital to the product provider when one dies.
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