The 2020 Retirement Income Review observed that “more efficient use of savings in retirement can have a bigger impact on improving retirement income”. We all know the narrative: When it comes to retirement income products, Australians prefer account-based pensions to annuities. However, Australians fear running out of money in retirement, so they only draw down at the minimum rates.
It would be great if superannuation funds could offer their members a product that increases their confidence to spend, no matter how long they might live, thereby supporting a more fulfilling retirement. These products do exist. Lifetime retirement income products, the most common type being a lifetime annuity, provide income for life. Still, superannuation fund trustees are not offering them to members because they say members don’t buy them.
The annuity puzzle is why people don’t buy lifetime retirement income products if they help them be more confident in retirement. Fortunately, it is not just an Australian phenomenon, nor a recent one; researchers have been trying to solve the annuity puzzle for many decades.
It has always been challenging to sell lifetime retirement income products to Australian retirees, whether traditional lifetime annuities or one of the more innovative ones launched in the past few years.
Now that many superannuation funds are considering lifetime income products as they implement their retirement income strategies, it is worth looking at this research and seeing what we can learn about offering these products to our members.
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