Development of a sophisticated market for annuity products is being hampered by outdated legislation reducing Australians’ flexibility in financing their retirements, according to the Actuaries Institute.

In its white paper on Australia’s ageing population, the institute calls for a stronger focus on annuities as a tool to spread retirement savings across longer lifespans.

But it says product design and regulation need reform, arguing current legislation is complex and prescriptive, preventing the development of modern annuity products widely used elsewhere.

These include income stream packages incorporating deferred annuities that apply from an advanced age and variable annuities, under which investors share the profits and losses of the underlying investments.

Changes in tax rules are needed so deferred annuity pensions are treated the same as other superannuation pensions and become tax exempt, the institute says.

Financial group Challenger estimates deferred lifetime annuity prices are 14% higher than they would be with tax-exempt status.

The Government needs to issue longer-dated bonds with maturity periods of 30 to 40 years – up from 10 years – to drive growth in the annuities market, the institute says.

It also calls for annuities to be excluded from Centrelink asset tests and minimum superannuation pension drawdown rules, and an end to taxes on income earned by deferred annuities while in the deferral phase.

While some of these measures may reduce tax receipts in the short term, they will relieve pressure on the aged pension in the long term, the paper says.