Beyond Murray: Why the FSI’s retirement emphasis is well placed

The initial report of the Murray Financial System Inquiry (http://fsi.gov.au/publications/interim-report/) placed a strong emphasis on Australia’s collective retirement income needs. It observed that the retirement market is under-developed and does not meet the risk management needs of retirees.
This demands a clear strategic direction from government along with meaningful tactical responses by the superannuation industry, legislators and, yes, Australian consumers.
For its part, Rice Warner will be preparing a submission to assist the Financial System Inquiry with analysis and data to help form its thinking on solving Australia’s bigger retirement funding problems.

There is relative urgency here. The number of Australians entering retirement is growing strongly, and we expect the number of male retirees who draw a superannuation pension to more than double from 950,000 to 2,021,000 over the next 15 years – an increase of more than 5.2% a year in numbers.

Simultaneously, female retirees will increase at a greater rate from 981,000 to 2,274,000 (5.8% a year growth).
Rice Warner projections show that this will see the total assets in pensions grow from 30% of all superannuation assets to 39% over the next 15 years.
From an industry reaction perspective, Rice Warner believes that the next growth phase for superannuation funds lies firmly in resolving demand from older members to help solve a number of issues, including funding adequacy in retirement.
The dilemma for superannuation funds is the considerable uncertainty faced by their members. Such people will understandably be worried about how long their money will last. But there are other related issues, including life longevity, pension adequacy, asset liquidity and characteristics, and expenditure patterns in later life to account for needs like aged care. Yes, there has been some product innovation in this space but nothing exists that addresses all the needs of members.

Products can only form part of a holistic solution, and need to live alongside:

• effective member engagement, education and advice
• careful structuring and management to deal with the specific risks and needs of retirees.

As the importance of Australia’s superannuation savings pool also grows (projected by Rice Warner to reach more than $5 trillion in present day dollars by 2043) it is quite clear that the parallel issue of our ageing population, the cost to government and the needs of retirees will be a major strategic matter for our policy makers to consider.
Michael Rice, CEO, Rice Warner.