Since the inception of the Superannuation Guarantee in 1991 the industry’s focus has largely been on the accumulation phase. From 2011, when the first of the baby boomer generation turned 65, the share of the population of retirement age has increased significantly. This coupled with increasingly larger super balances presents a huge challenge for the industry. This rapidly expanding wave of retirees is forcing funds to pay more attention to the financial outcomes of members in retirement.
McGing Advisory & Actuarial Managing Director, Sean McGing recently featured on a panel discussion at the 6th annual International Business Review Post Retirement Conference in Sydney. The focus of this panel was the future outlook of retirement for all Australians. Accompanying Sean on the panel was Brendan Coates (Household Finances Program Director, Grattan Institute) and Josef Pilger (Global Pension and Retirement Segment Leader, EY). Harrison Worley, journalist from Financial Standard was the moderator.
Member outcomes in retirement
Sean started off the discussion by focusing on the increased regulatory and industry focus on member outcomes and its relevance to post retirement. Member outcomes as prescribed in the SIS Act and Prudential Standard SPS 515 is largely about providing members with quality outcomes across the areas of net investment returns, fees/costs and insurance. When focusing on the post retirement space, the idea of insurance in accumulation turns into longevity protection. Member segmentation and cohort analysis will assist funds in determining whether solutions including longevity protection are appropriate based on different member attributes.
Retirement income review
With the Treasury’s Retirement Income Review now well underway it was another hot topic during the panel discussion. Brendan believes that the review should focus on what is an adequate retirement and that it will provide a good fact base for the government to make informed decisions.
Josef view was that it should be the “Retirement Outcome Review” and should focus on “what we want to be when we grow up”! That is, what sort of superannuation system do we want to design. Before we define this desired outcome, it is hard to determine whether or not we are on track.
Technology and default solutions
The session finished up with questions from the audience, focusing on the use of technology to determine appropriate default retirement solutions for members. The industry has done well at designing default options in the accumulation phase. However, member’s needs and circumstances differ greatly in retirement, making it extremely difficult to develop a default system which provides all members with the best outcomes.
My top 3 takeaways from the panel discussion and the conference as a whole were:
- Being comfortable in retirement isn’t just about financial outcomes – retiring with a large super balance does not always mean you will be happy. Superannuation funds need to consider other ways in which they can support their members in retirement.
- A large number of Australians are not financially literate, which presents a huge challenge when engaging members and developing complex retirement solutions.
- The superannuation system does not provide adequate retirement outcomes for all Australians. For example, women on average retire with balances half the size of men. Further improvements and innovation are needed if we wish to remain a world class retirement income system.
Bob is dedicated to collaborating with team members, clients and industry colleagues to produce his best work each and every time. As part of the next generation actuarial specialists at McGing, Bob leverages his strong analytical capabilities to provide clients with valuable insights. He is a committee member of the Young Actuaries Program (Melbourne) and his experience spans across Superannuation, Life Insurance, Investments and Risk Management., Investments and Data Analytics.