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Where is superannuation research heading?

What is discussed when 80 delegates from the superannuation industry, as well as Government, regulatory and academic bodies, come together for a day? How about superannuation and the economy, ambiguity of system and participant purpose, governance, wealth and health, big data and member behaviour, asset pricing and returns, changing work patterns and retirement outcomes, and retirement product design.

These were the focus of research presented this month at the 2015 CSIRO and Monash University Superannuation Research Cluster conference.

Founded in 2013, the Cluster is a collaboration between the CSIRO, numerous universities and industry participants in the retirement system. Its broad aim is to develop a research agenda establishing an evidence base for improved decision-making in the interests of better retirement outcomes for all. A select few topics are highlighted below.

Health costs in retirement

The health costs of older Australians are a core Government and private savings expense, yet the variability of costs between individuals is significant. Some will experience good health and be able to allocate a greater share of private retirement income to discretionary leisure. Others will experience a costly health event, the sequencing of which can be significant in impacting future retirement incomes.

Medical technology enhancements will decrease costs for some health episodes, while longevity will create new and expensive costs related to aged care and support, and dementia management. A key challenge is how to integrate policy settings with product design, and plan for a share of health costs from public and private savings. The overlaying complication for individuals is how to insure retirement income for events that can’t be predicted and where associated costs aren’t certain.

Much retirement income longevity modeling is based on the standard consumer price index (CPI) definition and inflation. But medical inflation is a different beast with greater adverse impact on older people. Is it worth considering an age-based CPI in modeling the longevity of retirement incomes, to enable greater consideration of the aged care and health costs facing retirees?

Changing work patterns

The world of work is changing with increased casualisation of the workforce and more workers experiencing frequent role changes and breaks from full-time employment. A linear pattern of consistent and steadily increasing superannuation contributions will not be the future norm. The impact of maternity-related career breaks on lower retirement outcomes for women is increasingly well known, and a similar pattern will play out for a greater number of workers.

What policy settings and product design might be considered to enable people with career breaks to maximise contributions when they can and with the same tax benefits of the traditional linear employment model?

Retirement income expenditure and big data

A common theme across papers was the industry’s lack of knowledge about how retirees spend their private retirement savings and income. Some research has suggested on average 90% of retirees’ wealth across their home, superannuation savings, and other non-super savings and investments remain unspent upon their death.

Research presented suggested some retirees frame minimum drawdown levels as a form of default target expenditure, and struggle with the shift from accumulation and saving to consumption. Concerns about income longevity and a desire to transfer wealth to the next generation are key motivators.

Government has signaled intent through recommending comprehensive income products for retirement (CIPRs) to revisit income distribution in retirement. Superannuation’s potential as a tax effective wealth transfer vehicle is also being reviewed.

Improvements in management information system capability present the opportunity for wealth financial providers and researchers to leverage big data in better understanding retiree spend patterns, and help frame policy settings and product development.

Industry and research cluster collaboration

Increased investment in academic research into the superannuation sector demonstrates greater Government demand for evidence-based policy development and settings. Industry providers can also benefit from the research findings. The need for greater collaboration between industry participants in developing policy, products, and services has never been greater.

The conference program and synopsis of papers presented is available here.

Information about the research cluster, projects, and research papers is available at: www.superresearchcluster.com/

 

Iain Middlemiss was Executive Manager Strategy at Colonial First State and Head of Strategy at Superpartners. This article is for general educational purposes only. Cuffelinks attended the conference at the invitation of the Australian Centre for Financial Studies.

 

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