 Ken Henry has thrown a fairly large carrot to Australia’s life insurance companies by proposing longevity insurance form part of the answer to the nation’s ageing population.
In his highly anticipated final report, delivered to Treasurer Wayne Swan last month, Henry recommends such products form part of a suite of options available to people to insure against the risk they will outlive their savings in retirement.
The market for products that provide either a lifetime, or deferred income stream in Australia remains underdeveloped, in part due to a psychological aversion to losing money to a life company and the perceived poor rates of return.
This aversion, however, has been somewhat tempered by the financial crisis which highlighted the vulnerability of retirees to market risk.
Recognising that Australians have one of the longest life expectancies in the world, Henry recommends that Australia’s retirement income arrangements be adjusted accordingly.
The report explores the idea of making longevity insurance mandatory, whereby people would invest a proportion of their super into a pool from which an income would be paid from a nominated age.
Such a scheme has its pitfalls. People who die prematurely ultimately subsidise the lifestyles of those who live longer, but compelling people to purchase the products would create a large pie for life companies competing in the space.
A voluntary scheme, on the other hand, places more risk on providers by skewing the take-up towards the wealthy and healthy (those who can afford it, and those who believe they have a good chance of living beyond average life expectancy).
Guaranteed products, while attractive by nature, are costly and face the significant challenge of pricing in expected mortality, yet non-guaranteed products shift the investment and mortality risk from the provider to the individual.
Crucially though for the private sector though, Henry points out that the Government is already the main provider of longevity insurance through the Age Pension, offering a ready-made infrastructure to enable the sale of longevity insurance in exchange for super payouts.
The report notes that the Government may be able to offset the risks inherent in offering an income guarantee more effectively than the private sector, especially if the Government has to insure private sector guarantees.
Mandatory or not, life companies must ensure that the opportunity to develop a system not dissimilar to Australia’s $3 trillion super sector does not end up in the hands of the state.
This is an opportunity not to be missed.
 |
| Comment: |
|
|
|
Perhaps even more to the point, will some or all SGC savings , present and/or future, be required to fund an annuity provided by the state? The Henry work provides compelling reasons.
|
| Commenter: David Williams Post Time:January 31st, 2010
|
|
|
|
Where is Henry coming from?
His haibrained schemes will discredit superannuation for good and blow all workers out of the water!
His other crackpot idea of raising GST is just as ludicrous. Many small businesses cannot pass on the GST and this puts them at a disadvantage. GST is an UNFAIR tax on small businesses. It kills cashflow and puts a time-burden on the small business people.
It adds another 10% tax to the company tax of 30% to raise the tax burden to 40% and increases their working hours by at least 8 hours per week, depending on the nature of their business. It is also very difficult to manage and easy to make mistakes.
Small businesses are now tax collectors. They should be rewarded for the work they do, not punished. The Government is losing its income base to Asia, especially China. It should be enhancing, not selling for a song!
|
| Commenter: M.J.Hancy Post Time:February 14th, 2010
|
|
|
|
