Federal Budget 2018: Move to lifelong products welcomed

There is a view that forcing retirees to buy annuities will wean them off the pension.

Budgeting for lifelong income

The long-awaited nod for alternative income streams for retirees has been welcomed by policy experts who believe it will bring comfort to pensioners worried they will outlive their savings.

Centre for Independent Studies (CIS) research chief Simon Cowan said the Federal Budget’s flagging that superannuation funds must start rolling out Comprehensive Income Products for Retirement (CIPRS) was “a good move”.

CIPRS are like annuities where a retiree buys a financial product that will guarantee an income stream for life. They were first recommended by David Murray’s Financial System Inquiry in late 2014.

Until now, however, annuities have not received the most appropriate treatment under Age Pension tests, Mr Cowan told YourLifeChoices.

“Under current pension rules, annuities are disadvantaged compared with other types of income streams and assets,” he said.

“The Government wants retirees to take up other products that will address the risk of longevity and so the new CIPR regime will make these products more attractive.”

As early as July 2019, Age Pension means testing rules will be tweaked to treat lifetime income streams more favourably.

While there is expected to be a wider range of annuity-style products to suit the varying requirements of pensioners, taking them up will not be mandatory at this stage.

Mr Cowan said that there were those who argued “forcing people onto these products had a benefit for the Government of reducing reliance on the pension”.

“However, that could have unforeseen consequences and would not be in the best interests of retirees who did not have a large super balance.

“There is an element of concern that on retiring, some people will take a large lump sum and spend it, knowing that they can go on to receive an Age Pension.”

Mr Cowan said while it was reasonable to assume that a CIPR regime would eventually wean Australian retirees off welfare, currently the products would be more about giving pensioners greater flexibility and better outcomes.

“A lot of people underestimate how long they will live. CIPR will be about ensuring that they have an income for the duration of their life.”

Investment experts at Cuffelinks explained the new Age Pension means testing rule that will take effect next year: “A fixed 60 per cent of all pooled lifetime product payments will be assessed as income for Age Pension eligibility, and 60 per cent of the purchase price of the product will be assessed as assets. These apply until the age of 84 (or a minimum of five years), and then 30 per cent for the rest of the person’s life.”

While the Government is yet to detail the new regime, Mr Cowan said the aim of the revamped means test was to treat annuity-style products as income rather than capital. Annuities and other income products bought before 1 July 2019 will be grandfathered.

A position paper on CIPR for public discussion will be released soon.

Are you likely to buy a financial product that will guarantee an income for the rest of your life?



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    10th May 2018
    Assets test free pension and tax on income strands, gifting in lieu of income, and fringe benefits.

    Simple solution.... would reap some tax back from the overly fat cats out there. They've had their sweet ride, now the piper needs paying... no such thing as a free lunch.

    10th May 2018
    Can't trust these schemers! They are finding a way to get at your super - by making people go to private companies to get income! Guess what happened last time they did such privatisation - of Electricity supply! Can guarantee low benefits for retirees, poor service, and with CEOs of these financial companies getting large and ever increasing bonuses!

    Best solution is to give Universal Pension to all simply based on Age (65) and Residency (of say 15 years), with NO other tests, and let all work hard to improve on that with additional income, downsize, etc, etc - in other words a solution which gives YOU all flexibility with no dependence on crooked companies to fund your retirement. Now, which Political Party will offer this - anyone?
    10th May 2018
    Absolutely right, George, but the power-mad bastards will never do what's right for the nation. Far too greedy!
    10th May 2018
    Right on the button
    10th May 2018
    Anyone out there who can explain the term in this article. What does "GRANDFATHERED" mean. When we took out an annuity about 10 yrs ago a smaller % was looked on by centrelink as an asset, then they changed the rules to a larger slice of the pie- wouldn't u know. It would be great if they reversed the rule. money, made round to go round, pref into gov coffers.
    10th May 2018
    Only way to retire comfortably without scum goverment changing names and rules to make sure you stay poor is to put it under the mattress. These lying rorting bastards will tell you this and do that,so I would never believed a word they say.everything they say sounds like lies .
    10th May 2018
    Hi inquisitive

    Not 100% sure but I think GRANDFATHERED is like exempted from changes sometimes when new rules introduced.
    10th May 2018
    Hi Inquisitive. It's Olga here. I should have explained it better. My understanding of grandfathered in this context is that if you bought an annuity before July 2019 it will be treated under the same means testing when the new CIPRS regime comes into play. That is, your annuity will be treated more favourably with benefits to you. It's a stupid term.
    10th May 2018
    I presume it's a given that the new rules will always be worse!

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