The Actuaries Institute has made the development of an appropriate retirement incomes market a major policy priority. It is therefore pleasing to see how the issue has been picked up by the Financial Systems Inquiry (FSI) Final Report, and by many others in government and industry. As the FSI summarises: The superannuation drawdown phase of Australia’s retirement income system provides limited choice for managing risk in retirement. It also gives little guidance to retirees in navigating complex and important financial decisions. Retirees do not efficiently convert superannuation benefits into income streams in retirement. This note mentions some recent developments, and sets out a view on priorities for the years ahead. Although I am convenor of the Institute’s Retirement Incomes Working Group (RIWG), the views expressed here are personal.
The report’s key findings are:
• Connecticut’s pension systems for state employees and teachers face large unfunded liabilities, despite recent efforts by the State to fund.
• A significant source of the problem is the "legacy debt" built up before the State began pre-funding its pensions in the 1970s.
• Since pre-funding began, inadequate contributions from the State and low investment returns have added to the problem.
• One way to address the problem is through a two-step approach:
1. separately finance the legacy debt over multiple generations; and
2. fund ongoing benefits using a level-dollar amortization method over a reasonable rolling period; and reduce the long-term assumed return.
Fiscal sustainability of pensions is a serious issue in Europe because of the ageing of the population but there is also concern that reformed pensions may not be adequate. Actuaries have always been seen as major players in employer-sponsored pension schemes and insured pensions but have often not been very visible in commenting on public policy issues concerning the pension system as a whole. This article introduces the work being done by the Actuarial Association of Europe to raise the profile of actuaries with European institutions on the broader policy issues.