Risk of a long life
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Jeffrey Hutton is a Morningstar contributor.
Big jumps in life expectancy are prompting the country's actuaries to encourage government to remove obstacles to a range of guaranteed income products that won't peter out before you do.
The actuarial term is "longevity risk". And tax and legislative barriers are blocking products that could act as a top up to dwindling superannuation accounts as some of us seem all but certain to see the last few decades of this century, actuaries say.
"The good news is we are living longer," says Andrew Boal, managing director of actuarial firm Towers Watson and chair of the superannuation practice committee for the Actuaries Institute.
"The bad news is we're living longer."
One potential hedge against living longer than expected are deferred annuities. In effect, they're insurance against a long life. They act as a sort of top-up for our superannuation and government pension, as savings dwindle when we totter into advanced old age.
Anyone retiring at age 65 wanting to hedge against living a long life could buy the policy that would go into effect from, say, age 85. Trouble is, try to take money from superannuation to buy it and you'll face a tax bill.
Also, current regulations undermine the economics that underpin a deferred annuity. A policy holder with a terminal illness can ask for their money back if they know they won't live long enough to earn income from the annuity.
"That creates a moral hazard," says Richard Howes, chief executive officer of Challenger Life.
"This is insurance and that sort of provision takes away the tension that makes it viable to offer a policy like this."
What is clear is that we are living longer. Between 1900 and 1970, the average lifespan for a man once he had reached 65 was an extra 12 years. The most recent population statistics suggest that's shot up to 19 extra years for men and 22 for women.
Partnered at age 65 and educated? Given improvements in medical technology, you have a 73 per cent chance that one of you will make it to 90 - and a 20 per cent chance they'll get a letter from the Queen at their centenary, according to data from the Actuarial Institute.
Those statistics, though, belie the mounting worry among many elderly people about making their evaporating savings stretch farther.
"Australians are one of the longest-lived populations on the planet," Actuarial Institute chief executive Melinda Howes said in a statement following the federal budget that overlooked the issue.
"The government has again failed to address the impending longevity tsunami, and the pressing need to develop a more vibrant annuities market to address this."
Deferred annuities may address the dual problems of meagre superannuation savings and longer lives. A comfortable lifestyle for a single 65-year-old male in retirement demands an annual income of at least $40,000, according to the Association of Superannuation Funds of Australia.