Paul Keating calls for Government longevity insurance fund

by Stuart Jones

In an address to the ASFA 2012 National Conference, former Prime Minister Paul Keating called for the establishment of a Government-administered longevity insurance fund to ensure the adequacy of retirement incomes in the later years of life.

Mr Keating believes that privately managed superannuation currently provides a reasonable retirement lifestyle for the first half of retirement during age 60-80 (Superannuation Phase 1) when it is all about retirement lifestyle. However, due to increasing life expectancy, Mr Keating said the super system is struggling to meet its promises during Phase 2 (age 80-100), which is more about aged care than lifestyle. In this respect, Mr Keating considers that the Government is currently the default insurer (via the Age Pension) for this longevity risk. To address this longevity issue, Mr Keating recommended making it compulsory to convert part of a lump sum retirement benefit to a deferred annuity as a pre-payment that would become available from age 80.

Alternatively, Mr Keating called on the Government to increase the superannuation guarantee from 12% to 15%, and use the additional 3% to fund a Government-administered longevity insurance fund to cover the longevity risk from age 80.  While covering the longevity risk for later in life is a classic insurance task, Mr Keating considers that the Government is in a superior position to pool risk and operate a universal social insurance scheme with a fully funded, carefully constructed product. According to Mr Keating, capital markets have problems managing longevity and aged care. Only governments can bear risk across generations as well as pool risk, he said. (Source: ASFA 2012 News, Issue 1, 28 November 2012).
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