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Super crosses the retirement Rubicon

“Alea iacta est!”

So declared Julius Caesar, and the die was cast as he commanded his legion across the river Rubicon in 49 BCE, and into direct conflict with Rome. From that point, it was either defeat or glory.

Two-plus millennia later, the phrase “crossing the Rubicon” is considered the point-of-no-return, a new phase from which fresh paths must be forged, the old ones no longer tenable. As it now is with Australia’s superannuation system, 33-years-old in its modern incarnation, having grown from a sub-$200 billion collection of (mostly) corporate funds and public sector schemes pre-1992 into a $4.3 trillion colossus today.

But this isn’t a story of the $1.05 trillion in self-managed super funds (SMSFs), or the million or so Australians who are responsible for their own retirement affairs.

This is a tale of the other 16 million-plus members who are in one of the 87 remaining APRA-regulated funds operated by 58 Registrable Superannuation Entities (RSEs), who collectively are responsible for just over $3 trillion in member benefits as of 30 June 2025.

How significant have the changes to retirement policy been since the introduction of the Superannuation Guarantee on 1 July 1992?  Well, consider the following.

According to Treasury, in 1986 superannuation only covered 46.5% of full-time employees and 7% of part-time employees. Further, in 1982-83 some 82% of all members were in defined benefit (DB) plan structures.

Today there is near-universal SG coverage for employees, DB assets account for less than 14% of total APRA-regulated assets, and 95% of member accounts are instead in defined contribution (DC) plans where individuals bear all the key retirement risks.

The winds of change

The entire super system is now encamped on the southern bank of the Rubicon, facing into the irresistible force of population ageing now bearing down upon it.

With the first of the Baby Boomers retiring in the early 2000s, what was once a trickle is turning into a metaphorical flood. According to the latest Intergenerational Report, the total number of Australians aged 67 or older is expected to roughly double from some 4.5 million people to around 9 million individuals by 2062-63.

If demographics are destiny, then the message for the 58 remaining RSEs should be loud and clear: continuing to preference asset gathering (the accumulation phase) over the retirement phase (decumulation) is unlikely to be a winning long-term strategy.

Retirement ready? From Cooper to Cole

Policy makers and retirement researchers have been warning of the growing decumulation tide in superannuation for almost two decades.

Take for example the 2010 Review into the Governance, Efficiency, Structure and Operation of Australia’s Superannuation System (the Cooper Review), which recommended the introduction of the MySuper regime.

Jeremy Cooper and his fellow panellists were at pains to make clear that “[while] much of the focus in superannuation is on the accumulation phase, the primary reason for the existence of Australia’s superannuation savings regime is to provide income for Australians in retirement”.

In fact, the recommendation for MySuper products was that they include one type of income stream product, so that members “can remain in the fund and regard MySuper as a whole of life product”.

That obviously didn’t come to pass.  In hindsight, perhaps a golden opportunity squandered.

David Murray returned to the issue in his 2014 Financial System Inquiry final report, in which he recommended a requirement for a ‘Comprehensive Income Product for Retirement’ (CIPR) to be offered to retiring members on an opt-in basis, one that provided a blend of income stability, flexibility and some measure of longevity risk management.

The CIPR recommendation kicked off a flurry of industry consultation through 2014 and 2015, with the CIPR ideal morphing into a ‘MyRetirement’ product concept put forward by Treasury.

Much ink was spilled by the industry in submission writing (some of it mine), but when all was said and done, more was said than done; whereupon the industry’s focus drifted off to the implementation of the accumulation-only MySuper, and thereafter the 2021 commencement of the annual Your Future, Your Super (YFYS) performance test.

This reprieve from having to consider the needs of retiring members was brief however, with the 1 July 2022 introduction of the Retirement Income Covenant (RIC) requiring all RSEs to formulate, implement and regularly review a retirement income strategy to assist their members into and through retirement.

Funds now have a legal obligation to help members maximise their expected retirement income and manage the expected risks to the sustainability and stability of said income, all while having flexible access to their retirement funds. That’s no small optimisation trilemma.

Some super funds are, three years on, making a better fist of RIC than others, with Margaret Cole, the Deputy Chair of APRA recently noting that progress was “inconsistent across the industry”.

Cole also notes that most members approaching retirement today do not have confidence in their decision-making; a confidence that comes with “having access to easy-to-understand information about the options available to them, guidance on the retirement planning process, and the availability of suitable products and service offerings to meet their needs”.

It would be prudent for RSEs to take note of the growing regulatory impatience hinted at here.

Leaders and laggards

At the time of the final Cooper Review report there were some 700,000 pension accounts within APRA-regulated funds (2.3% of all accounts), holding collectively around $155 billion in assets.

Today that pension FUM sits at around $550 billion, and according to APRA estimates is tracking toward $3 trillion over the next two decades.

Baby Boomers will soon be joined by Generation X in looking to their super funds for help with retirement security. The pressures to deliver solutions to meet this growing retirement wave will only ratchet ever higher.

And that is where the cracks are appearing; the bifurcation of retirement measures into funds that are up and running with robust RIC programmes and those still on the ‘starters' blocks’, with recent APRA research indicating that 20% of RSEs can’t track the success of member assistance in balancing the trilogy of RIC objectives mentioned above.

For these laggard funds, the data gaps between what they know about their members and what they should are large, persistent and problematic.

The pressure to meet both the letter and spirit of RIC isn’t evenly distributed, however. It is very clear from member engagement, acquisition and retention trends across the key segments as to which funds are acquiring what types of members from whom.

Those funds that have optimised their funnels for the acquisition of higher balance, older, pre-retiree members with the intention of providing investment, operational and service excellence into-and-through retirement stand to benefit at the expense of those who haven’t.

Yesterday’s scale game is tomorrow’s service game

The past two decades were an institutional scale game, where the main success metric was accumulation net inflow, and top quartile returns plus low fees were the keys to success. Effectively, accumulation was a ‘just one cohort’ game where scale mattered above all else.

But now funds are across the Rubicon, facing a much different challenge; to morph into solution-oriented, retirement-focussed entities that can meet, in extremis, the ‘cohort of one’. These solutions might entail some combination of online tools and calculators, quality retirement education content/seminars, access to financial advice (whether online or in-person, in-house or outsourced) as well as innovative retirement income products.

We also know what that future might look like thanks to joint APRA/ASIC annual RIC reviews over the past two years, which have repeatedly pointed to the same RSE deficiencies; understanding members’ needs, designing fit-for-purpose assistance and overseeing RIC strategy implementation (including measuring and tracking the success of retirement income strategies).

The die is cast. There is no way back. The future belongs to those funds who can rise to the solution challenges ahead, driven by quality insights into member retirement needs, circumstances and preferences.

 

Harry Chemay is a Principal at Credere Consulting Services and has almost three decades of experience across financial advice, wealth management and institutional consulting. Credere Consulting Services assists clients across wealth management, FinTech and the APRA-regulated space, focussing on improving member retirement outcomes.

 

29 Comments
Jeff O
September 10, 2025

(Well motivated?) Lawyers - u can never say never - an i'm not a lawyer - and could be tested but hopefully governance/supervisors watching and working???

Peter G
September 08, 2025

In the accumulation stage most people focus on growing their super as big as they can. And they are nervous about volatility. So, few people take the most aggressive investment option. It's as if 'retirement' is an end in itself. As a retiree of many years, the biggest change at retirement is to get used to the idea that managing your super is all about paying an income. That doesn't mean the income (rents, dividends, interest) that your assets produce. It means having cash and stable assets in your portfolio which you can draw on to pay the minimum or desired level of income - and then you can leave the growth assets to grow. In my experience, the pool of growth assets will at least double every ten years. Yes, there will be volatility but remember your super is for income. Has big super grasped this truth yet, or is everyone scared of the bogey word volatility?

Jeff O
September 08, 2025

AUS Super CEO acknowledged that many (retired) older Australians continue to over save and under spend as in his speech this week at the National Press Club. To quote him, "We need to build a world-class spending system."

And I'd add well as many work too long, leaving excess savings in bequests. But the die is far from cast in my view - vested interest still abound!

While this over saving/underspending may be a fully informed personal choice in some cases, it remains driven by government/market/policy failures surrounding (net) national savings - a combination of poor public and private governance/ laws/ supervision and an inefficient and unfair government welfare/care system, on self interested asset managers, financial illiteracy and a lack of disinterested financial/life advice/service.

All these failures need to be addressed to create a world class financial system to support the funding of a world class spending system - the die is far from cast!

Dudley
September 08, 2025


"managing your super is all about paying an income":
Actually about capital cashflow.
Withdrawals for a beneficiary from a super fund or from a personal bank account are withdrawals of capital, not income.

"to pay the minimum or desired level of income":
.. minimum or desired level of cashflow.

"Yes, there will be volatility but remember your super is for income."
When end of requirement for cashflow is a about decade away, eg death, and there is plenty of capital for cashflow drawdowns, being exposed to risk means more to lose than to gain.
Growth or not makes little difference.
Capital provides adequate cashflow even at negative rate of return.
= PMT(-5%, 10, -1, 0)
= 7.46% / y.

Jeff O
September 08, 2025

Dudley
"your super is for income".....to spend...
"capital" ...can be readily turn to income .....and spent

OldbutSane
Agree - no great need for "more products".....govt aged pension, private super/industry pensions, bank deposits/TDs etc etc ......poor governance/ supervision

Some market/govt failures - aged pension too widely available, tax concessions too generous, home not properly incorporated with savings only partially unlocked by govt scheme, disinterested costly advice etc etc

Yes - too many (old) Australians are over saving or underspending and Govt undersaving/overspending - so potential growth is lower, with fewer jobs and lower incomes for younger Australians - intergenerational inequity

Dudley
September 08, 2025

""capital" ...can be readily turn to income .....and spent":
Income instantly turns into capital at the moment received.
All spending is of capital.
Some refer to super 'pensions' and 'income streams'; inviting taxation.
Super [ capital ] cash is withdrawn from 'disbursement accounts / funds'.
No more 'income' than withdrawals from a bank account.

OldbutSane
September 07, 2025

I really don't get what all the fuss is about and why we need "new products".

The super system is designed so that you are required (if you have your money in pension phase) to withdraw all your funds from the super environment by about age 90. This doesn't mean that you have to spend it, it just can't remain in super. If you don't have enough for a basic income once your super runs down/out you can access the age pension as a top up. Therefore, why do we need more products when an account based pension and when applicable the age pension are probably more than adequate for the vast majority and especially since the biggest complaint about the retirement system seems to be that too many people are dying with too much of their money still in super!

David Bell
September 05, 2025

That's a great piece Harry, blending history with current state and future need. Thank you.

Steve
September 04, 2025

Its an impossible question, for one very simple reason - lifetimes (life expectancy) is an unknown and therefore how much to draw in pension is not a known number. Yes, there are annuities but the arch conservative nature of these investments makes them quite unappealing, not to mention the deliberate opaqueness of the industry in not telling you how much of an annuity payment is actual "return" from investments and how much is simply your own money being handed back to you (and how much of the total return is taken as profit). One day, not-for-profit industry funds may offer something in this space as my back of the envelope calculations on returns from insurance companies suggested something like 40% of the overall return was kept as profit, meaning your overall return was quite alot lower than you might expect from a not-for-profit entity. Very low returns from very conservative investment, plus nearly half the already low return being taken as profit leaves you with sweet fanny adams in my humble opinion. So there is no flood for annuities. An industry in need of a revolution, sooner rather than later; they look like a hangover of the bad old days of high commissions and low returns.

Aaron Minney
September 05, 2025

Steve
I am Head of Retirement Income at Challenger and I think you are missing some of the innovations since those bad old days.
I'm not sure how you calculate the 40%, but I think you are looking at the return the wrong way. As the life insurer has to put all the investments (including capital backing) in a stat fund which is ring-fenced to protect annuity owners, the assets have to cover two investment returns.
1) the payment to annuity owners. This is a fixed interest-like return. While this return is not explicitly published investors can get 5% (in round terms, depends on payment frequency) for a 20-year term annuity with no residual value. This is publicly available and a reasonable proxy (exact returns depend on yield curve slope etc)
2) the return to shareholders for providing the capital which ensures that all the promised payments to annuity holders will be made (including if they all live longer than expected). This is the insurance capital, and if all goes well the shareholders will earn a return which is targeted at RBA+12%- compensation for the risk they take.
The mix of these two components changes over time, but can require up to 30% or so in capital to be held against investment assets used to back a lifetime annuity.
The assets are managed to pay both the annuity owners and the shareholders. (Without shareholder capital there would be no annuity).
A good retirement solution will include both a lifetime income stream (such as a lifetime annuity) and a flexible investment, and the annuity is likely to be a minority allocation. For many retirees the Age Pension (possibly only a part pension) will also be an important component of their retirement income. Taking 'growth' exposure on the rest of the portfolio can generate higher long-term returns (with the usual risk warnings).
Today, there are also innovative annuity solutions that provide a lifetime income stream with underlying growth exposure. This changes the mix, but you'll find 'returns' similar to balanced funds here with higher income payments from the pooling. Note: the income payments will rise and fall with markets.
There are no commissions on annuities purchased in Australia (unfortunately this is not true globally). Returns of 5.0% p.a. might be considered low, but that is driven by the market and it is better than most other guaranteed investments. If you want higher returns, there are other options available but there are no guarantees.

Dudley
September 06, 2025


"investors can get 5% (in round terms, depends on payment frequency) for a 20-year term annuity with no residual value":

Which means the 'investor' receives only capital. No earnings. Not even enough to pay for the loss of value due to inflation.

= $1 / 20 y
= $0.05 / y.
= 5% return of inflation devalued capital per year.

Internal rate of return to result in annual payments of 5% of capital:
Rate required 0%, term 20 y, present value -$1 (- = in/into annuity), future value $0:
= PMT(0%, 20, -1, 0)
= 5% return of inflation devalued capital per year (no earnings).

Considering inflation:
= PMT((1 + 0%) / (1 + 3%) - 1, 20, -1, 0)
= 3.61% return of inflation devalued capital per year (no earnings).

Total real capital returned over 20 y per $1 initially invested:
= (1 / (1 + 3.61%)) ^ 20
= $0.492

Aaron Minney
September 06, 2025

Dudley
the 5% is a return, not the payment. Total annual payments would be just shy of $8,000 for a $100,000 investment.
You can check that in your payment calculator, using the 5% as the IRR.

Dudley
September 06, 2025


"5% is a return, not the payment. Total annual payments would be just shy of $8,000 for a $100,000 investment":

Internal Rate of Return 5%, term 20 y, Present Value -1 (- = invested), Future Value 0:
= PMT(5%, 20, -1, 0)
= 8.02% / y
= $8,020 / $100,000

After inflation:
Invest $100,000, over 20 years, receive total $119,317.35; Internal Rate of Return 1.936% / y.
= (1 + 5%) / (1 + 3%) - 1
= 1.942% / y.



Tony Dillon
September 06, 2025

“my back of the envelope calculations on returns from insurance companies suggested something like 40% of the overall return was kept as profit"

Steve, you have been consistent with this “40% profit margin” call, on investment company annuities for some time now, going right back to a comment you made earlier this year which I was going to respond to but didn’t get around to at the time. It stems back to your observations on annuities offered by Challenger. At the time you quoted annuity rates, and in particular, those for an 80 year old female because you said the maths was “easier over 10 years”, whereby Challenger quotes rates for a 10 year withdrawal period for an 80 year old. You went on to say that assuming a term deposit earning rate, that after 10 years, 35% of the capital paid for the annuity remains on the table for Challenger, and that if 0% was to remain, then the annuity should be 43% more than what Challenger offers.

The problem is, you have assumed the Challenger rates quoted are 10 year annuity certain rates (i.e: annuities not dependent on survival), when in fact they are lifetime annuities. You have assumed that, because of the quoted “10 year withdrawal period” by Challenger, which does not refer to the term of the annuity, rather it is a period where you can get back some or all of your money if you voluntarily withdraw or die during that period.

I have done some back of the envelope calcs of my own assuming mortality according to Australian life tables and current investment returns, and the Challenger annuity rates look reasonable. Bear in mind, lifetime annuity rates should be less than shorter term annuity certain rates because of the probability that the lifetime annuity will be payable for longer (that is what you are seeing). And they should be greater than longer term annuity certain rates because lifetime annuity payments are discounted not only for interest but also for survivorship. There is a point in time such that an annuity certain rate will equal the lifetime annuity rate, beyond which the lifetime annuity rate is greater. If you are in good health and think you can outlive that point in time, then go for the lifetime annuity. Intuitively, this maths works because over time, the pool of annuitant money paid up front is progressively shared by less annuitants.

Hope this helps.

Steve
September 08, 2025

Thanks Tony, and also Aaron. I suppose to not labour the point I'll use the analogy of industry super versus retail super - what is the primary point of differentiation? Fees. Same for low cost index funds vs retail funds. We have been educated for many years now that fees make a tangible difference in how much you get in an accumulation fund, and not-for-profit organisations leave more for the members (actual investment performance to one side). Particularly when one is getting a quite low return (say 5%), fees can make a large difference in how much the end user gets in their own pocket. By the exact same logic one would expect a not-for-profit organisation like an industry super fund could offer annuities with higher payments simply by returning most of the investment returns to the annuity holders and not have to share it with shareholders. That is the crux of the argument. Now of course it is not as simple as offering a new product, I expect they would need the same structure and oversight as insurance companies, but to me it looks a great way for industry funds to expand their offerings to their members. Or maybe I'm missing something.

Dudley
September 08, 2025


"Or maybe I'm missing something":
Shareholder equity as buffer in insurance company, not present in profit for members?

Rob
September 04, 2025

It is not a particularly complicated process - you need an "Asset" backing an "Income Stream" where the rules are clear that 4/5/6% etc must be withdrawn annually, depending on your age.

The only real variable is the Asset Backing. In Accumulation mode, Members choose the "pool" they want to be in - Balanced/Growth/Conservative etc - their choice, with or without advice. Create a few new pools - "Retired Balanced", "Retired Growth", "Retired Bonds", whatever and retiree draws down annually or monthly, which is exactly what a SMSF does in retirement. I honestly do not see what the fuss is about.

John
September 05, 2025

I tend to agree

Steve
September 05, 2025

Rob the complication as I alluded to above is not just the income stream and the % mandated to be withdrawn, it is being able to produce both an income stream AND draw down capital without running out too early. The latter issue (unless you simply plan to die with the capital intact for the kids) is how to manage the drawdowns. The only viable way is pooled risk via some form of annuities but these products are very unattractive and look very much to be products of the good old days where customers are royally screwed. Come up with a viable annuity option and many of the concerns about getting a decent income stream will be largely mitigated. But I don't see any great discussion on this.

Dudley
September 05, 2025

"rules are clear that 4/5/6% etc must be withdrawn annually":
but spending the withdrawals is not compulsory except for the compulsive spender.

"The only viable way is pooled risk via some form of annuities but these products are very unattractive":
Another solution is to spend less than after tax income.
Another is to drawdown capital at a slow enough rate that capital remains after death.

Amount to spend / y:
return 5% / y, inflation 3% / y, to 114, from 67, present value 1, future value 0.1:
= PMT((1 + 5%) / (1 + 3%) - 1, (114 - 67), 1, 0.1)
= -3.40% / y

Rob
September 06, 2025

Steve - the system is designed so you steadily increase the rate of drawdown as you age so that is your "baseline". If the Minimum is more than your cost of living, it comes out anyway and you invest any "surplus" elsewhere probably, for most people, at very little tax. If the Minimum is less than you need you can drawdown Capital to supplement your cost of living - if it "runs out" before you do, you call Centrelink. It is not perfect but it is not bad and requires some personal responsibility

An annuity conceptually is not dramatically different EXCEPT the "Capital Adequacy" of the provider is heavily regulated as it should be, to ensure they can meet their "guaranteed stream of future payments". In turn, that leads to more conservative, but less volatile, investments which, long term, produce lower returns than well structured Balanced or Growth Portfolios. Age old tradeoff risk vs rewards!

The remaining issue with annuities is that they are "guaranteed". As such you need to very carefully evaluate the "safety" of that Guarantee. We are lucky in Australia with prudent regulators - globally plenty of failures. Personally I would not go near any Secondary providers or inflated promises!

Old super hand
September 04, 2025

Watching paint dry is more exciting than keeping an eye on demographic changes. Doubling of something over 40 years involves quite a low compound growth rate. More of a trickle than a flood. However, Harry is not the only person to use colourful language about the demographic change. The term "tsunami" gets used rather too often to describe the very gradual demographic change. Changes to policy settings may be needed but better to have considered changes rather than rushed changes to policy settings. For many people account based pensions work well, with the Age Pension providing protection in regard to financial consequences of longevity.

Andrew Smith
September 05, 2025

Super is still a system in development and guess those starting work mid 90's will be the first cohort to have had a full, worming life of employers SCG and personal contributions; like demography it's long term.

Issue locally is the short term media focus on now and border movements of temporaries counted in under the NOM Net OS Migration described as 'immigration' driving 'population growth'....bad.

This minority of temporary residents in the population, mostly international students, are 'net financial contributors' to support budgets for an ageing permanent population cohort, most of us here?

At least till mid century and post boomer 'bomb' old age dependency ratios* are increasing; *retirees vs working age were 20% in 2000, 30% now and 40%+ mid century or more retirees, but fewer working age.

Australian is well ahead of the curve on sustainable retirement income compared to most of the developed world.

Kym
September 04, 2025

Asset allocation may need tweaking to ensure liquidity but calculators need to be capable of modelling the longevity of capital across various drawdown rates. The biggest apprehension for new retirees is the mystery of how passive income can replace personal exertion income for those that haven't engaged with the investments in their super. Seeing a superfund has had a X% performance in a year may be comforting but how does that relate to the minimum drawdown rates required in de-accumulation?
Plenty of growth oriented portfolios can serve de-accumulators but education will be the key for bringing people along.

Think
September 04, 2025

I am still yet to see a detailed explanation as to how the industry isn't ready (and any different to the accumulation phase) for an increase in pension members.

Are the challenges any worse and would the results be any different to similar tracking and measuring of the accumulation? Some funds are better than others and this is true in both accumulation and pension phases.

Dudley
September 05, 2025

"Are the challenges any worse and would the results be any different to similar tracking and measuring of the accumulation?":

Offer a 'retirement product' and expect a class action should the retirement fund runs out of funds before the retirees run out of puff.

Philip Rix
September 06, 2025

Dudley, as a long term reader in this forum that has to be one of the clearest ever explanations of the key issue at hand being made by the author that I have read from your many contributions! Well said - this could mark a new direction for you.

Jeff Oughton
September 08, 2025

Class action?? Against who???
Against Super funds that hold no capital for operational risks....just more moral hazard (bail outs) for governments or more government aged pensioners

Dudley
September 08, 2025

"Class action?? Against who???":
The remains of the super fund with the foundered 'retirement product'; such as accumulation accounts?

Assuming beneficiaries had to agree to commencement of disbursement ('pension'), the grounds might be that the fund was required to offer 'retirement products' and failed in that duty and 'poor wee feeble minded' retirees can not be expected to understand the risks they were agreeing to.

A well motivated lawyer might concoct a better scheme.

 

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