There are three major issues life insurance companies and superannuation trustees need to consider regarding the Australian Treasury Department’s recent discussion paper on the review of retirement product regulation.

First is whether the current regulations for annuity and pension products impede the development of new and innovative products.

The second issue is if, and how, the tax concessions for retirement products should be extended to deferred lifetime annuities. Currently, deferred lifetime annuities do not enjoy the same tax concessions as other retirement products.

And thirdly, life insurance companies and superannuation trustees need to consider whether the current minimum withdrawal requirement for the account-based pensions is appropriate, especially in light of certain market shocks (for example, the Global Financial Crisis).

The paper was released in July and the period for submissions closed on September 5. The focus of the paper is much narrower than the Financial System Inquiry headed by David Murray.

It invited submissions on the specific changes to regulations governing the features of retirement products that should attract tax concessions, rather than submissions on policy questions of the appropriateness of those tax concessions.

We believe changes to the current annuity and pension regulations could lead to an introduction of new retirement income products that utilise pooling of retirees’ money. But it is difficult to see a significant change in retirees’ behaviour towards retirement income products unless there is a more fundamental shift in the Government’s policy direction, such as mandating income stream products or providing strong tax incentives towards certain income stream products.

The  paper also contains a useful overview of the current retirement incomes market in Australia, as well as a good summary of the current regulations governing the retirement products (on pages 7 -12), for those who are not familiar with this area.

More details are available on the Treasury’s website.