An industry superannuation fund is raising the bar on managing longevity risk and taking the initiative to get ahead of the retirement income review gridlock.
Chris Drew, the investment manager for public markets at the Australian Catholic Superannuation and Retirement Fund, says the super fund is not waiting on the federal government to help its members solve the financial risks they face at retirement.
Five years ago, ACSRF built RetireSmart, a retirement income product designed to meet the longevity risks of members, who were facing a long retirement.
The product has defensive and growth components that aim to grow members' capital and income in their later years, which on average is a 52-year-old female school teacher with a nest egg of up to $300,000. The account-based pension was recognised as a product of innovation by the Australian Business Awards.
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Drew told the recent AIST's superannuation investment conference that the product continues to evolve - despite the lack of guidance from the federal government - which continues to back down on its Comprehensive Income Retirement Products (CIPRs) proposal.
RetireSmart was constructed to be flexible with the view that it will eventually be CIPR-compliant, he said, but pointed out that the super fund could be waiting two more years if it relied on the government's direction.
In the context of the government's retirement income review, new analysis by Rice Warner reveals how changing superannuation policies will have a fiscal impact.
For instance, freezing the superannuation guarantee at 9.5% will have a modest budget benefit in the short term via higher taxation revenue, but over time will be offset by lower superannuation.
In another scenario, increasing the SG by 0.5% next year will improve the budget bottom line via lower Age Pension payments in the future and increased revenues on extra assets accrued through compound returns, the report reads.
For this year, Rice Warner estimated that the SG will save the budget $17 billion, and $100 billion by 2058.
"It also shows compulsory super combined with a supplementary means tested pension is the most efficient pathway for governments to meet community expectations about retirement incomes.
"Superannuation saves Australia from the budgetary, economic and social unrest evident in parts of Europe who have long struggled to grapple with unsustainable publicly funded pensions," Retirement Income Review Modelling Fiscal Results report said.