The Federal Government’s recently released Intergenerational Report uncovered some startling, though not altogether surprising findings on Australia’s demographic and social trajectory. Released every five years, the report looks at the long-term sustainability of current Government policy settings and the impacts of an ageing population on economic growth.
It is not news to anyone that we are all living longer. Average male life expectancy will increase from 91.5 to 95.1 in 2055, and from 93.6 to 96.6 for females.
The number of Australians aged 65 and over will more than double, and Australians are predicted to have one of the longest life expectancies in the world. Such findings will inevitably have implications for individuals’ retirement planning.
There are the usual considerations around how much we will need to retire and what constitutes a comfortable retirement for people. And this in itself presents challenges. We know that for people it is difficult to imagine yourself as ‘older’.
If you asked someone what they want out of retirement, regardless of age, they will probably give you an abstract vision centred on travel, family and health, but it will likely be without tangible aspirations.
It is hard for people to have goals for the future, or an understanding of how much money they will need because they cannot think that far ahead and they have no way of knowing how long the future will actually last.
The transition to retirement stage can be a critical juncture for people as they prepare for what might well be life’s ‘second act’.
It is an important time for individuals to be thinking ahead and to disregard their natural inclination that thinking about the future is not possible until they are actually in it.
As an industry the onus is on us to help our customers, which means providing them with the tools to navigate what can be a minefield of confusion, and helping explain the process for them.
Financial advice is under a lot of scrutiny but what we must remember is, at its core the delivery of quality financial advice can make a real difference in people’s lives, and the impact is unparalleled.
As our ageing population spirals towards retirement, it presents both a challenge and an opportunity for financial advisers and product manufacturers to effectively engage with these customers.
The longevity impact
Retirement and how we will fund it is a significant issue as the population ages and it is a challenge that industry, government and regulators need to collectively address.
We need to look at what the appropriate policy and product settings might be for the post-retirement phase of superannuation, and where retirees need more money.
This is not only because they are living longer but also because they need to manage the key risks of inflation eroding purchasing power, and the potential impact of negative markets in the early stages of retirement.
There are many things to consider to ensure we have the right settings in place. One option could be a regulated longevity solution, so that retirees have a steady and certain income stream in retirement. If we get the policy settings right it would mean pension income can be delivered beyond a person’s average life expectancy.
Current and future generations of Australians will benefit and enjoy financially sound retirements if we deliver quality professional advice to people and the right policy settings to provide incentives for older people to work and save more, and then preserve and protect their retirement incomes.
When you know the problem, it is much easier to develop a solution.
Increased longevity, coupled with declining birthrates, demands that we rethink our priorities around sustained economic growth and job creation for all ages. Ultimately we need to do what is right for Australians and it needs to be flexible to suit individual needs.
The path to retirement
It is widely accepted that most Australians are not saving enough for retirement. The current standards set by the Association of Superannuation Funds of Australia show older couples aged around 65 seeking a comfortable retirement will need to spend $58,364 a year. For older singles wanting a comfortable retirement, they will need to spend $42,604 a year, requiring a balance of around $430,000.
So what changes do we need to make, and how do we help our customers understand what they need to do? Not only does it mean having the right retirement solutions that meet the future lifestyle needs of Australians, it also requires building trust with customers so that they have the confidence we will be able to help them achieve their retirement goals.
It is an important time for individuals to be thinking ahead and to disregard their natural inclination that thinking about the future is not possible until they are actually in it.
After all, the wellbeing of all Australians should be our focus, regardless of whether their super balance is $100,000 or $1 million, so the customer gets the best outcome they can in retirement.
MySuper, with its intent to help Australians who might not be engaged with their superannuation accumulate an adequate retirement nest egg across their working lives, support these principals of giving Australians the confidence that their superannuation will support their future retirement.
Improvements in technology further reinforce this. The transparency offered to customers via digital channels, which includes access to sophisticated but easy-to-use modelling tools, creates a competitive environment that ultimately benefits the customer.
If their provider does not clearly articulate and deliver on its promise, the consumer will seek it elsewhere.
Not just existing but living
Future success in the retirement space will be led by companies who are trusted most by their customers, and by those who make it simple and easy for them to ensure that they can achieve the goals that they have during retirement.
Not only do we need to think about the right solutions to address the inevitable longevity tsunami, we need to use our expertise to give Australians the confidence that they will be in a position to support their future retirement.
We want people to have enough not just to exist, but to live. Health is one of the biggest fears of people as they age. But medicine is helping everyone live longer. If we save and plan appropriately in the middle part of our lives it means we are more likely to enjoy the later years with security, health and enjoyment.
Patricia Montague is the director of superannuation and investment platforms at AMP.
