super guest lecture
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The Australian
Superannuation
System and
Retirement
Adequacy
2 April 2015 See the unforeseen.
Total superannuation assets to grow to $7.6 trillion by 2033
© 2015 Deloitte Touche Tohmatsu
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,0001997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
$ b
illio
ns
Actual - APRA Base Run
APRA market statistics to 30 June 2012
Source: Deloitte Actuaries & Consultants, 2015
$7.6 Trillion
Industry Segmentation
© 2015 Deloitte Touche TohmatsuSource: APRA Statistics – December Quarter 2014
© 2015 Deloitte Touche Tohmatsu
Total Asset Size: $568.3 billion
Number of Funds: 545,334
Number of Accounts: 1 million
Asset growth 2004 – 2013: 14.8% p.a.
Total Asset Size: $403 billion
Number of Funds: 42
Number of Accounts: 11.5 million
Asset growth 2004 – 2013: 13.2% p.a.
Source: APRA Statistics – December Quarter 2014
© 2015 Deloitte Touche Tohmatsu
Total Asset Size: $58 billion
Number of Funds: 34
Number of Accounts: 0.5 million
Asset growth 2004 – 2013: 2% p.a.
Total Asset Size: $572.5 billion
Number of Funds: 144
Number of Accounts: 14.4 million
Asset growth 2004 – 2013: 7.4% p.a.
Source: APRA Statistics – December Quarter 2014
Superannuation Shortfall
© 2015 Deloitte Touche Tohmatsu
Is this realistic?
Contribution
Rates
Males Females
17.4% 19.5%
How do we close the gap?
Acco
un
t B
ala
nce
(C
urr
en
t $)
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
30 35 40 45 50 55 60
Retirement Needs*
Projected Retirement
Balance*
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
30 40 50 60 70 80 90 100
How does mortality improvement impact retirement needs?
© 2015 Deloitte Touche Tohmatsu
Account
Bala
nce (
Curr
ent
$)
$770,000
$450,000
Traditional View of Retirement Spending
© 2015 Deloitte Touche Tohmatsu
Acco
un
t B
ala
nce
(C
urr
en
t $
)
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
30 40 50 60 70 80 90 100
Source: ASFA Standards, December 2014
Spending = $43,000 p.a.
The Reality of Retirement Spending
© 2015 Deloitte Touche Tohmatsu
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
30 40 50 60 70 80 90 100
$40,000 p.a.$38,000 p.a.
Acco
un
t B
ala
nce
(C
urr
en
t $
)
Source: ASFA Standards, December 2014
Spending =
$43,000 p.a.
The Critical Period for Investment Risk
© 2015 Deloitte Touche Tohmatsu
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
30 40 50 60 70 80 90 100
Acco
un
t B
ala
nce
(C
urr
en
t $
)
Sequencing Risk
© 2015 Deloitte Touche Tohmatsu
“Sequencing risk is the risk that the order and timing of your
investment returns is unfavourable, resulting in less money for
retirement.”
… or more simply: “the worst returns in the worst order”
• Lower returns in the years preceding retirement
• Lower returns in the early years of retirement
• Cashflow drawdowns in a depressed market
Longevity Risk
© 2015 Deloitte Touche Tohmatsu
“Longevity is increasing by approximately 1 year every 10 years”
Increases in Life Expectancy since 1870
© 2015 Deloitte Touche Tohmatsu
Source: ABS Australian Historical Population Statistics 2008 (cat. no. 3105.0.65.001); ABS Deaths, Australia, 2009 (cat. no. 3302.0)
But life expectancy is only the average.
© 2015 Deloitte Touche Tohmatsu
8565 105
50%
10% 10%
72 94
Source: ABS 2011-2013 Life Tables
How much do you need?
© 2015 Deloitte Touche Tohmatsu
If you retire at age 65 with an aim of having $60,000 p.a. indexed, a 30 year old now would need:
Balance Contribution Rate
$545,000 15% If you live to age 75
$914,000 26% If you live to age 85
$1,160,000 38% If you live to age 95
Possible post-retirement solutions
© 2015 Deloitte Touche Tohmatsu
Deferred
AnnuitiesRisk
Pooling Life-Time
Annuities Draw-down
Other
Possible Solutions
Two determinants feed one result
Legislation
Lifetime Limits
Higher Concessional Gaps
Higher Superannuation
Guarantee
Compulsory Member
Contributions
Compulsory Income Streams
Industry
Education/Advice
A New Industry Focus E.g.
Accept Competition
Include the professions:
Accountants, financial
advisors
How can we close the adequacy gap?
Deloitte’s Preference
© 2015 Deloitte Touche Tohmatsu
No one clear answer
BUT
A combination of draw-down & risk protection products
• COMPLEX
• Clearly retirees need advice!
The Murray Inquiry: Key Superannuation Points
© 2015 Deloitte Touche Tohmatsu
• Need for post-retirement products
• Better Governance
• Full Choice
• Too expensive?
Tax Inquiry
© 2015 Deloitte Touche Tohmatsu
Concern:
$20 -$40 billion in tax concessions
(depending on what you listen to)
Options:
Tax on post-retirement earnings
Limit (or tax higher) concessional contributions
Tax high balance
Insurance is often overlooked in superannuation
© 2015 Deloitte Touche Tohmatsu
Premiums
have
increased
dramatically
Under
Insurance
Short &
Long-term
Solution
The Future of Superannuation
© 2015 Deloitte Touche Tohmatsu
• Will always be a key part of retirement savings
• Must not be allowed to be eroded (E.g. draw-down for homes)
• Industry needs to educate on the importance of saving
• Financial advisers are critical to improving the financial health of those in or approaching retirement
Questions?
Russell Mason
Partner
02 9322 5347
Ben Facer
Principal
02 9322 3493
© 2015 Deloitte Touche Tohmatsu
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