It continued that while the proposed best-practice principles for retirement income solutions are a step in the right direction, they will ultimately fall short, and more structural change is needed to ensure the system fully delivers on its promise of more comfortable retirements.

“Rather than steering retirees into account-based pensions drawn at the minimum, retirees should be guided – by both the government and their super fund – to use 80 per cent of their super balance exceeding $250,000 to purchase an annuity,” it read.

“Retirees’ remaining super would be drawn via an account-based pension, giving them flexible access to capital. This reform could boost retirees’ incomes by up to 25 per cent, while also ensuring that the bulk of retirees’ incomes – irrespective of their super balances – would be guaranteed to last for the rest of their lives.”

The submission also recommended that the federal government directly offer retirees a suite of annuities called “Lifetime Super”, which should include a simple lifetime annuity as the baseline offering, as well as alternatives such as investment-linked annuities.

“These annuities should be priced at fair and sustainable rates and managed by an independent agency. People struggle to understand annuities, which can make it difficult for retirees to scrutinise products for their value and make rational decisions,” it continued.

“And annuities are typically ‘one-shot games’ – a retiree typically cannot switch to a better deal if they see one. Designing a wholesale market that overcomes these issues would be challenging. Government-provided annuities are the best option.”

Furthermore, the institute said the federal government should establish a free guidance service that “sums-the-parts” of the retirement income system for retirees.

“That service could be directly administered by government, or the government could fund third parties to provide it, as already occurs with the PensionWise retirement advice service in the United Kingdom,” it added.

“A government-funded guidance service would be less likely to be conflicted than the advice offered by super funds, and therefore more likely to be trusted by many retirees. It would be much better placed than super funds to help couples plan their retirement income, and to service people with diverse linguistic or other needs.”

Moreover, it said such a service could consolidate existing government services, integrate with the myGov online portal, and also assist retirees to apply for the age pension.

Finally, the submission said the government should direct APRA to performance test account-based pensions and develop product assessments for account-based pensions and private lifetime-income products.

“The government should also create a top 10 list of the best super funds, and then steer retirees towards those funds.”