Old-age super products a ‘fraud’

The Australian 12:00am May 22, 2018

Michael Roddan

New superannuation income products backed by government reforms in the budget, which are designed to encourage older Australians to spend big in retirement, have been slammed as “actuarial fraud” by one of the country’s largest funds, the $55 billion Sunsuper.

The sentiment — which is shared by large sections of the not-for-profit super industry — marks an early setback for proposals set to be enshrined in law by Financial Services Minister Kelly O’Dwyer, who only last Thursday released a position paper on the so-called comprehensive income products for retirement (CIPRs).

This budget progressed government’s plans to encourage development of post-retirement products, with proposals to require super funds to offer specialised post-retirement products that provide income for life.

The financial systems inquiry, led by former Commonwealth Bank chief executive David Murray, recommended the government encourage the development of CIPRs in its 2014 report.

The annuity-style products provide an option for retirees providing a guaranteed income stream for the rest of their lives.

CIPRs are increasingly being viewed with hostility by some in the nation’s $2.5 trillion nest egg sector.

Sunsuper national manager corporate business Ray Murray yesterday said forcing funds to offer CIPRs was part of an “actuarial fraud” around savers’ fear of longevity.

Mr Murray, speaking yesterday at the Actuaries Institute’s annual forum in Sydney, said Sunsuper was seeing no demand for CIPRs from its 1.3 million members.

“Funds will have to spend a lot of money developing it for no demand,” he said.

“You’ve either got explicit guarantees or implicit guarantees that have capital requirements — it’s all right if you’re a big fund. It’s fairly complicated for a major part of the industry. I think its actuarial fraud.

“Why, if these are such a good idea, is there compulsion involved? If they are good, there will be a market for them. Forcing them doesn’t sound good.”

Should the laws be passed, actuaries will be inundated with work to measure and manage the risk and uncertainty of providing income products for the life of super fund members.

Kevin O’Sullivan, chief executive of the $66bn UniSuper, said funds must ensure they made decisions in the best interests of their members.

“There’s a danger that actuaries say this (CIPRs) is a groovy little thing,” Mr O’Sullivan said. “But when you put on your trustee’s best-interests-of-the-member-hat, it doesn’t make sense.”

David Bell, chief investment officer of the $10bn Mine Super, largely welcomed the reforms and said they gave the industry a chance to focus on better outcomes for members.

However, Mr Bell found only a slight benefit for a saver if they had a “smart” deferred group-self annuitisation, and an overall customer detriment for a saver who purchased a deferred liability annuity. “You have to work really hard to find a marginal benefit for a CIPR,” Mr Bell said.

UNSW actuarial professor Anthony Asher said CIPRs only protected those who lived the longest and outlasted their savings, so only about 5 to 10 per cent of Australians needed one. Of these, two-thirds were women. He said the industry needed to ensure there were no adverse outcomes for this segment of the population.

“Little old ladies do not complain,” Mr Asher said. “Poor people, right at the end of life, are the ones we need to focus on, because that’s who we are protecting.”

Mercer senior actuarial partner David Knox said his 92-year-old aunt was “living with confidence” with her annuity. But he questioned why Treasury had settled on a $50,000 savings balance threshold.