Sent: 02-08-2011 10:21:53
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Retirement Incomes and Longevity
There appears to be very little in the Government's Tax Reform paper about superannuation and retirement incomes.
One item asks, "Are there opportunities to improve the rules for superannuation during the drawdown phase?"
Some people are arguing that retirees need more certain income and that new products need to be developed. Others have said that a deferred annuity should be allowed so that retirees have some income flow towards their later years.
Thus far most of these suggestions appear to involve the pooling of risks. It also seems to involve investors who live a longtime winning (because they get paid more than they put into the pooling arrangement) and investor's who die young losing (because they get paid less than the put in).
In theory however there's nothing wrong with these pooling arrangements as long as the arrangement is transparent and it's easy to work out what is going on.
At present it would be difficult to hold the line that what goes on inside life insurance statutory funds or defined benefit super funds can be easily understood by investors. In truth most advisers don't understand so maybe most investors have no idea. Much of the important information (principally actuarial assumptions) is not published due to commercial sensitivities. You're certainly not going to be told what profit margin assumptions have been built into products!
I'm not sure how this problem could be solved.
It's been my opinion for sometime that the solvency standards for life insurance company annuities need to be looked at again. Any company that wants to use equities in their annuity pool needs to hold a very large amount of shareholder capital. This type of restriction effectively encourages life offices to purchase AAA fixed interest investments because their 'safe' much like CDOs and US Government Bonds!
The other problem is the two bets that investors have to make - Firstly investors are assuming that the organisation they gave their money to will still be around in twenty years time and secondly that it will have sufficient assets to pay them their agreed level of income when they actually want it.
One only needs to look at the top 50 companies listed on the stock exchange over twenty or more years to see how hard it is for any organisation to survive without a major hick-up over an extended period of time.
Finally please consider purchasing a copy of this book "A How To Book Of Self Managed Super Funds". You can look at the contents page at the following link: http://www.atcbiz.com.au/r.php?r=0mjd6ne
For details of the changes made from version 4 to version 5 visit: http://www.atcbiz.com.au/r.php?r=d5xcpch
As you'll see from the list there have been many changes.
Two purchase options are available - once only subscription - $55 inc GST - or an annual subscription will gives you access to all the updates made throughout the year ($120 inc GST). The book can be purchased at the following link: http://www.atcbiz.com.au/r.php?r=5a4agqb
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