The Australian superannuation system has evolved in such a way that risk has been shifted onto individual members.
That is according to Deloitte Actuaries & Consultants partner Wayne Walker, who was a key author of Deloitte’s report, The Dynamics of the Australian Superannuation System – the next 20 years – 2013-2033.
As a result of individuals bearing the investment risk and the longevity risk, Walker says that there will be pockets of members to whom the super system has not delivered what they legitimately expected it to deliver.
“The major pocket over the past few years have been those approaching and entering retirement,” says Walker.
He says that the GFC caused more than a ripple for the aggregate system, bringing lasting adversity for those on the verge of retiring as well as many currently retired Australians.
“Many Australians now approaching retirement have only received super for a limited portion of their working lives as our system is still maturing.
“The concern is that current policy settings, including changes to caps and drawdowns, and the SG 12% increase, will not deliver the lifestyle that the majority of those retiring in the next 20 years are seeking. The reality is that many Australians will need to work longer and where possible contribute more.”
The report showed that deferring retirement would have significant results. By deferring the retirement age by two years to age 67, Australia’s asset pool will increase by $400 billion. If it were possible to defer retirement age by five years to age 70, another $1 trillion would be added to the system. This will bring the total pool of superannuation assets to $8.6 trillion.
However, Walker points out that not everyone will be able to spend extra time in the workforce and the jobs will also need to be available.
Another tool to combat the risks is contributing more. The Actuaries Institute says that 15-16% is the preferable super contribution. For a comfortable retirement, current 30 year olds would need to make an additional contribution of 5.4% as a male and 7.5% as a woman on top of their current SG rate, says Deloitte Actuaries & Consultants partner Russell Mason.
The report concludes that there are a number of ways in which Government and the industry can act to address the issues.
“Specifically, encouraging people to work longer is part of the answer; Encouraging people to contribute more to their retirement is part of the answer; Facilitating the access to quality and independent advice through your working lifetime is part of the answer. And pooling of long risk is part of the answer,” says Walker.