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Govt ponders pension top-up plan -

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Govt ponders pension top-up plan

Lexi Metherell reported this story on Thursday, August 13, 2009 12:42:00

ELEANOR HALL: One of the measures being considered under the Federal Government's taxations review
would see retirees able to swap their nest egg for a lifetime top-up from the age pension.

The proposal aims to address concerns that some people's super balances may not be big enough to
see them through their retirement.

But some in the industry are already warning about the changes as Lexi Metherell reports.

LEXI METHERELL: Superannuation arrived late in the working lives of many people who are soon to
retire. It only became compulsory in the early 1990s. That means many are underprepared for their
retirement with nest eggs too small to support them through the rest of their life.

The head of the Australian Institute of Superannuation Trustees Fiona Reynolds has told ABC Local
Radio in Sydney the issue needs to be addressed.

FIONA REYNOLDS: The average account balance at the moment when someone gets to retirement is about
$150,000 for men and about $75,000 for women. And of course a lot of people have got less than the
average.

LEXI METHERELL: The Treasury Secretary Ken Henry is examining the matter as part of his review of
the tax system which is set to be handed to the Government in December.

And it's been reported that the review panel is considering a proposal whereby retirees could hand
over some or all of their super balance to the Government and in exchange get a lifetime boost to
the age pension.

IAN SILK: So you'd have the aged pension as the staple of your income in retirement and you'd have
an enhancement to that or an increase to that in the form of a supplement that you've funded
through part or all of your lump sum retirement payout.

LEXI METHERELL: Ian Silk is the head of one of Australia's biggest industry funds, Australian
Super. He says topping up the age pension could make a real difference to someone's retirement
income.

IAN SILK: If somebody was prepared to put $60,000 into this sort of scheme it would mean that
they'd be able to increase the pension by around $2,000 per annum, which is a material percentage
increase on the relatively modest level of the pension.

LEXI METHERELL: Is it attractive for the private sector to provide products like this at the
moment?

IAN SILK: The bigger issue is not who provides it; that is whether it's the government or the
private sector. The bigger issue is to have settings that enable it to occur.

But the private sector to date has not been able to develop products that are competitive, that are
cost competitive and therefore are attractive to consumers.

It is a logical issue for the government to be involved with. The superannuation system is a
creature of federal legislation. The pension of course comes out of government revenue.

LEXI METHERELL: Michael Monaghan is a partner at Deloitte Actuaries and Consultants.

MICHAEL MONAGHAN: At the moment it's not so attractive for the private sector because of the
capital requirements and other regulatory constraints in providing this sort of product.

LEXI METHERELL: He says the scheme would increase the risk the government would have to make higher
than expected payouts if people live for longer than expected.

He says an overhaul of regulation should be considered to make it more attractive for the private
sector to provide annuities and take on some of that risk.

But he says in any case annuities aren't very popular and questions how widely the scheme would be
adopted.

MICHAEL MONAGHAN: What people don't like is the risk that you might put in your $100,000 and only
live for three or four years and so only get $6,000 or $8,000 back effectively.

ELEANOR HALL: That's Michael Monoghan, a partner at Deloitte ending that report by Lexi Metherell.