APRA finalises changes to the capital treatment of longevity products to improve retirement outcomes

The Australian Prudential Regulation Authority (APRA) has finalised amendments to its prudential standards on the capital treatment of longevity products, including annuities, to strengthen the market for retirement income products.

The reforms reflect APRA’s commitment to support innovation and reduce unnecessary regulatory constraints, while maintaining strong prudential safeguards. Better aligning capital settings with the long-term nature of longevity liabilities enhances capital efficiency and creates a more proportionate and risk-sensitive framework.

APRA Member Suzanne Smith said: “We’re backing innovation in retirement income and we’re doing it safely. As the prudential regulator, we always look for opportunities to refine our requirements. These adjustments to capital settings will free up insurers to invest in sustainable, competitively priced products that help Australians retire with greater confidence.”

The key change is the introduction of an option for insurers to use an advanced illiquidity premium (AILP) when determining capital requirements for longevity products. This approach better reflects the long‑term nature of these liabilities. To underpin the AILP option, APRA has also introduced additional risk controls relating to the governance, reporting and asset composition of portfolios to which it is applied. Together, the reforms provide a more risk-sensitive, principles‑based approach that reduces procyclicality in capital settings, while maintaining appropriate safeguards.

The final reform contributes to APRA’s strategic objective of ‘getting the balance right’ by ensuring its regulation is efficient and proportionate. It follows two rounds of consultation with industry feedback strongly supporting the changes.

The final prudential standards and APRA’s response paper are available at: Proposed changes to capital framework for annuity products

The reforms will come into effect on 1 July 2026. To support implementation, APRA has released a reporting template for insurers who choose to use the AILP and is seeking feedback on the template by 12 May 2026.