Investment management firm Challenger today said it had done the preliminary work to roll out deferred lifetime annuities (DLA) if the proposed federal government reforms to their tax treatment were adopted.
“We have done some preliminary pricing and product design and believe we will be in a position to offer a market-leading DLA should the super tax reforms be implemented,” Challenger Life chief executive Richard Howes told theinstoreport.
The government announced last Friday that it would extend the concessional tax treatment to deferred lifetime annuities, a measure the industry and in particular Challenger, which already offered annuities, had repeatedly asked for.
“DLAs are not currently offered in Australia because they are inadvertently and unfairly taxed compared to other retirement products,” Howes said.
“Immediate lifetime annuities, however, are taxed the same way as every other super investment.”
He said deferred annuities formed an important tool in addition to existing investments and acted as insurance against longevity.
“The benefit is that DLAs provide proper and pure longevity insurance, freeing up financial advisers and their clients to spend the balance of super savings on growth assets during the known period between retirement and median life expectancy, which is when many deferred lifetime annuities will kick in,” he said.
Challenger currently offers fixed-term and lifetime annuities that start at the moment of purchase and the company is expected to become a large player in the deferred annuity market.
This expectation was reflected in the spike in the share price of Challenger after the announcement of the planned reforms; shares in the company closed 4 per cent higher at $3.93 in a negative market on Friday.
Challenger chief executive Brian Benari on Friday said the government had finally addressed the risk of running out of money in retirement.
“We welcome the levelling of the taxation playing field in this regard because proper longevity insurance removes the major ‘silent risk’ of retirement – running out of money in later years and being forced to survive on just the age pension,” Benari said.
“Ninety-three per cent of seniors regard running out of super and living only on the age pension as unacceptable, and finally something is being done about it.”
Superannuation funds have started to embrace these products.
Recently, Qsuper signed a partnership with Challenger for the distribution of annuities to its members, while MTAA announced it would offer annuities in partnership with its insurance provider, MetLife.