New research from University of Melbourne researchers has identified two reasons why financial advisers don't recommend annuities to their clients.
Orford Initiative's latest findings found advisers play a key role in recommending annuities, but face barriers in doing so.
Senior research fellow Teagan Altschwager and associate professor of marketing Jody Evans say the "fee-for-service" nature of financial advice, the limitations on advisers' ability to add value to annuities, and government regulation holds back advisers from recommending annuities to their clients.
"Some advisers said that because annuities are a 'set and forget' kind of product, it actually limits the value they can add to a client if they sign them up to an annuity," said Altschwager.
"This is problematic if advisers are turning away from annuities because it would mean a lost opportunity for the adviser, rather than being driven by consumer benefit."
They said the government's increasingly stringent regulation for advice may also put advisers off recommending them to clients.
"This could help to understand why the Australian annuity market is so different to other countries," Altschwager said.
"Internationally, annuity products have far greater prominence because government policies are in place to incentivise people to take this option and protect themselves against outliving their retirement savings.
"There needs to be a greater balance between comprehensive compliance and giving advisers the freedom to provide advice in a meaningful and engaging way with clients."
The Orford Initiative at Melbourne University is funded by the Orford Foundation, set up by former Financial Synergy managing director David Orford.
Orford has since set up a retirement income product provider Optimum Pensions, which this month signed a distribution deal with ASX-listed Generation Life.
The final report from the Retirement Income Review, commissioned by the federal government, acknowledged the need for longevity products in retirement but also warned that financial advisers' involvement may deter adoption of "set-and-forget" solutions.
"The fee for service model that many financial advisers now use may mean that unaligned financial advisers are less conflicted than superannuation funds when they provide financial advice. This may encourage a more competitive retirement product market," the report said.
"However, financial advisers may have an incentive to recommend retirement products that require an adviser's frequent involvement, such as an account-based pension, rather than a 'set and forget' product, such as a lifetime annuity or other longevity risk management product."