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Superannuation in retirement (Australia)

Unsatisfied with the pace of retirement income innovation in the country, the Australian Government Department of the Treasury released a consulting paper at the end of 2023 titled Retirement Phase of Superannuation. It noted that the superannuation industry has largely focused on the goals of the accumulation phase, with relatively little attention on addressing the following goals of the decumulation phase:

  • to maximize retirement income,

  • to manage risks to the sustainability and stability of that income, and

  • to maintain flexible access to capital.

In the paper, the Treasury asked for feedback from the public on ways to achieve these goals, and Nuovalo was encouraged to make a submission. We were happy to do so and submitted a response paper that discusses the merits of shared longevity risk pooling as a highly efficient way to achieve these important goals. Our response also outlined different ways that such pools could be implemented, including an innovative idea for maximizing efficiency while also eliminating portability problems by creating a nationwide longevity risk pool that could be shared across all superannuation providers.

"Longevity risk-sharing pools offer substantial benefits to the superannuation system, including greater economic efficiency for the system as a whole and substantially higher income for retirees. Moreover, risk sharing would facilitate greater adoption of lifetime income through features that address many of the factors underlying the so-called annuity puzzle. Our comments discuss how a solution could be implemented most efficiently, allowing for standardization where it makes sense and maintaining the ability of superannuation providers to freely innovate and differentiate."

Read the full text of our submission here.

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