“Australia has a superannuation system that is, in many respects, a world-leading best practice. But post-retirement income is one of the weakest parts of the system,” he said. Mercer has studied what is missing from the post-retirement mix and how optimum whole-oflife solutions can be developed. “The mindset of the superannuation industry must change,” he says, “to move away from the previous focus on accumulation to a more ‘whole of life’ approach including more tailored solutions for retiring or retired members.” Data from the major Australian public sector super schemes shows that 65-year-old males can now expect to live to 85.4 years, which is higher than the 2005-07 Australian Life Tables’ projection of 83.5 years that covers the general population.

This longevity is now putting pressure on the funding of Australia’s retirement system, says Mercer’s managing director, David Anderson. At present, the paid workforce’s contributions to super funds comfortably exceed those funds’ payments to retirees – but the difference is about 5 per cent only of total system assets, Anderson warns. In fact, he says, “investment income is already more material to the growth of the superannuation system than contributions by and on behalf of fund members”. Mercer’s research shows that, putting aside the proposed SG increase from 9 per cent to 12 per cent, the gap between super contributions and benefits taken by retirees is expected to narrow, with crossover in 15 years’ time. “Investment earnings and losses aside, we will then have a declining system in real terms,” says Anderson.

The solution requires three approaches: maximise super savings, delay retirement, and improve retirement funding options and products. Andrew Boal, managing director at Towers Watson, says that at the fund level, funds must improve their offering to members to improve retirement outcomes for the individual. “Is there an opportunity for longevity pooling within funds and how would it work?” he says. “What are the issues related to lifecycle or target-date investing and what is the impact of the size of the account balance? How do funds provide income guarantees?” he asks.

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