The UK needs to learn from Australia’s decision to consult on mandatory annuitisation if it is to “avoid consigning millions to a poorer retirement”, a leading retirement expert has warned.

According to the interim findings of a government commissioned investigation into Australia’s financial system, the nation is considering introducing compulsory annuitisation to provide protection against inflation and longevity risk.

The move comes at a time when the UK is in the process of significantly relaxing restrictions around accessing pension savings. The government's response to a consultation on proposals to end the effective requirement to annuitise is expected on Monday.

The Financial System Inquiry report said “a quarter of people with a superannuation balance at age 55 have depleted their balance by age 70” and “half of superannuation benefits in retirement are paid as lump sums”.

Just Retirement’s group external affairs and customer insight director Stephen Lowe said “Australia proves that if you give people the freedom to take as much from their pension as they want, then significant numbers will take it”.

“On average, about one-third of superannuation assets are withdrawn before people reach state pension age. And a quarter of people have depleted their assets by age 70, when they are still likely to have many years to live.”

The Australian report said the ability to use superannuation lump sums to extinguish debt can “encourage higher pre-retirement consumption and borrowing”.

The inquiry has called for a new round of submissions on how Australia could better meet the challenges of an ageing population, such as by providing incentives to encourage retirees to purchase retirement income products that help manage longevity and other risks, or forcing people to convert all or part of their superannuation benefits into an income stream providing protection against inflation and longevity risk.

“The fact that the Australians are looking at moving towards mandatory annuitisation reflects the fact that there isn't a clear consensus on what the default policy position should be,” Hargeaves Lansdown’s head of pensions research Tom McPhail said.

“The UK budget reforms are unlikely to lead to mass abandonment of the annuity sector, though they may lead to greater use of drawdown. The right answer for most individuals probably involves a combination of the two.”

Share Story: