The Financial System Inquiry final report has recommended superannuation funds make more use of longevity pooling in their retirement products.
The report recommended that super funds offer a quasi-default 'comprehensive income product for retirement' (CIPR) to all members at retirement on an opt-in basis. This CIPR, it said, should have a significant component of longevity risk protection.
"People have different needs in retirement and will value the three desired attributes of retirement products (income, risk management and flexibility) differently," the reports stated.
"CIPRs should deliver a balance of these attributes. As no single product has all these features, a CIPR is likely to be a combination of products ... Superannuation funds may work with life insurance companies, other funds or other entities to provide CIPRs."
The report suggested a CIPR could be combination of account-based pensions and either deferred lifetime annuities or group self-annuitisation schemes of the type developed by Mercer.
The report also recognised that there is currently a lack of longevity products in Australia, and recommended that the government remove product development impediments.
If members decided not to take the CIPR, they could still opt to take a lump sum. The report expected low-balance members to continue to opt for lump sum payments.
Speaking today in Sydney, FSI chair David Murray said the emphasis on longevity risk protection would provide more reliable income for longer. "The trade-off would be that less money saved through super would be available for bequest," he said, adding that this was in line with the view that superannuation is about income in retirement.