The Australian population is getting older. In 1991, the median age was 32.4; it is now 38.2. Does that matter?
It does, because a major component of that increase is the number of Australians retiring. And that is set to have a big impact on superannuation funds.
In 1991, 11 per cent of Australians were aged 65 or older. That proportion is now 17 per cent, and the majority in that age group are retired. In terms of superannuation, that means they have moved from the ‘accumulation’ phase to the ‘retirement phase’.
They are drawing on their super funds rather than contributing to them. As the proportion of Australians in the retirement or pension phase rises, the overall shape of superannuation funds will change. Indeed, that change has already begun.
In the past few years, Australia has seen a consolidation of super funds. A big factor in this consolidation has been the subsummation of funds deemed by APRA to be underperforming into larger, better-performed funds.
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But another factor is the need to change investment strategies as more Australians begin to draw on superannuation reserves, currently estimated to be around $3.2 trillion.
With baby boomers leaving the work force, they are increasingly drawing on those reserves. In 2021, pension payments totalled $46 billion. By 2040, that annual figure is forecast to rise to $137 billion.
According to APRA, over the next decade alone about 3.6 million Australians will move from the accumulation stage to the pension stage of superannuation – a 14 per cent increase.
So what does that mean for those heading towards retirement or those already there?
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For Australians as individuals, probably not much. But for the managers of our funds, quite a bit. First, as more withdrawals are made, funds will have to ensure their investment structures are well placed to manage the increase in funds being drawn.
And second, super funds will – or at least should – be focusing more on the changing needs of their members. That may start with something as simple as superannuation statements. Members who have been used to seeing their fund totals rise over the decades will obviously see them heading south.
Members should reasonably expect fund managers to educate and guide them through this stage. That is, after all, the purpose of superannuation.
Many funds have already made this a focus. Australian Retirement Trust (ART) − the merged QSuper and Sun Super – is one such example. ART strategy chief Teifi Whatley says the fund uses annual statements to help guide members on their progress and how much their account would provide in income payments when they retire.
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“We use seminars, webinars and the website as much as possible to guide members,” she said.
Another large fund, Hostplus, has outlined plans for what it calls ‘Wake Up’ packages. These are designed to get members to engage more closely with the fund and, hopefully, improve their lifestyles in retirement.
The government will be keeping a close eye on this tactical shift. A combined APRA/ASIC review of the industry’s strategies is due in mid-2023.
If you have moved into retirement, or are closing on it, now might be a good time to take a closer look at how well prepared your fund is for you, and the increasing number of Australians joining you in retirement.
Are you about to move into retirement? Is your super fund a good source of information and advice? Why not share your thoughts in the comments section below?