David Orford back onto a different horse: lifetime income streams


It’s been a long time in the making but David Orford’s new business, Optimum Pensions, is starting to gain traction. Set up last year after he sold his super admin systems company, Financial Synergy, to IRESS, Optimum Pensions has gathered together a team of eight experienced superannuation people and is marketing its wares to big super funds and other life insurers.

The business is something Orford, an actuary, has been thinking of for years. He believes that pensions, in their various potential guises, will have a more significant impact on the industry and society as a whole than the Superannuation Guarantee has.

He has long held a passion to do something about the looming problem for Australia’s super system – to provide accessible and affordable income streams in retirement. He is no longer so interested in making money, having done very well out of Financial Synergy after nearly a life-time’s effort. His main driver is that he wants to make a difference.

While super funds are aware of the problem and are keen to keep their retiring members in their funds, they are notoriously slow to act. The take-up of existing lifetime annuities products offered to super fund members and the general public is still quite small. Challenger International, a commercial provider, is leading the way with new pension-style business, thanks to clever and ubiquitous marketing, when common sense would dictate that their super funds should be the first point of contact for most members.

Orford says that the two things he believes Australia’s super system has needed for the next phase of its development were: online financial planning, which is now readily available through various robo-advice offerings, including what Financial Synergy built for its clients; and decent lifetime retirement income stream products.

He is now in a position to turn his mind to the second challenge.

“I started working on it in 2007,” he says. “It was clear to me that what people needed was a lifetime income stream. But I had thought that for years. I started to work with Austock Life but quickly realised that the existing legislation made lifetime income streams very expensive. So, I went to see Nick Sherry [the former Labor Senator and first minister for superannuation]and met with about 20 people from the ATO [Australian Taxation Office] and explained what I wanted to do. I explained why we needed shareholders’ capital to support the extensive and costly guarantees provided and why the existing products were dumb.”

Orford examined the TIAA-CREF offering in the US, which had a similar background to that of most not-for-profit funds in Australia, having grown out of a teachers’ pension fund environment. “They are a large pension fund [and fund manager these days]and they started providing several unit-linked lifetime income streams for members back in 1952,” he says. “So I embarked on a journey.”

That journey took a sharp turn for the better in July last year when Kelly O’Dwyer, as minister for revenue and financial services, removed a lot of the restrictions on providing lifetime income streams to allow what Orford believes is the best option for most members. Joe Hockey, when he was Treasurer (now ambassador to the US) and Ken Henry, when he was secretary of the Treasury, had both previously indicated their support for reform in the area.

Orford did a deal with Hanover Re, a big global reinsurance company, which will take on the longevity risk in the white label Optimum Pensions offering.

Peter Rowe, the general manager, is one of the people he has gathered into the new business. A former head of operations at Vision Super, he says that the real value-added advantages for big super funds in joining up with Optimum Pensions include: “The longevity risk is covered by an insurance policy, so that the fund doesn’t bear that risk; the fund keeps the assets under management so it can still invest them; and, our white label design product is market linked, with member investment choice available.” Optimum can also design the product for any particular fund who wants it, with a guarantee of income for life like what is provided generally by Challenger.

Orford says: “Many developed countries in in the rest of the world are doing this. There are four countries where over 80% of retirees voluntarily purchase lifetime pensions. We see this as best practice for pensions. We can improve people’s retirement lifestyle while helping to reduce the escalation cost of the Age Pension, which is funded by us taxpayers. This is bigger than the SG.”

– G.B.