In a submission to the government’s Review of Retirement Income Stream Regulation, ASFA said the system needs to explicitly cater for disengaged super fund members who do not want to make a retirement decision.

ASFA said the default arrangement would convert part or all of a member’s balance into a sensible, low-cost retirement income arrangement.

“Given current restrictions on the transfer of balances from a MySuper product, legislative change would be required to establish a ‘MyPension’ equivalent to ‘MySuper’,” said ASFA.

The submission argued the design of the MyPension default arrangement should be consistent with the current approach to MySuper, which “sets general principles for the design of products, while allowing for variations between offerings, and puts in place a high level of fund governance”.

ASFA said the MyPension arrangement should also be approved by APRA.

The approval process, according to the submission, should require trustees to demonstrate that their arrangement “takes into account the demographics and profile of their membership”.

“In terms of a maximum for what should be permitted in default MyPension arrangements, a provider should be allowed to have a default arrangement with a form of longevity protection, but with a requirement for opt-out to be offered,” said the submission.

ASFA also noted in the submission that some of the regulatory impediments currently facing retirement income streams including a narrow definition of what constitutes an annuity in the Superannuation Industry (Supervision) ('SIS') Regulations, which is based on specific product features.

“This section of the SIS Regulations needs to move to a more principles-based approach,” said the submission.

ASFA said the SIS rules also require a minimum payment to be made from a pension every year, which it argued does not cater for deferred annuities.

“Deferred lifetime annuities should be exempt from such a requirement during the deferral period,” argued the submission.

It also noted that deferred annuities currently do not receive a tax exemption during the deferral period.

“To ensure a level playing field, it is important to ensure that all superannuation assets are given the same tax treatment,” said ASFA.

“The tax rules on deferred lifetime annuities should be changed so that, during the drawdown phase, the product is regarded as a pension.”