Super legislation 'raises raft of questions': Milliman

Following the government's release of changes to superannuation legislation, the legal definition of the objective of mandatory super will be “to provide income in retirement to substitute or supplement the age pension”.

In an article on its website, global actuarial services provider Milliman said the newly defined objective of superannuation “gives far greater prominence to the role of the age pension in Australia’s retirement system than in the past”, and “is also substantially different to the natural objective of most funds [which is] to help members save for an adequate – preferably comfortable – retirement lifestyle”.

“The new legislative objective suggests that super is not the sole key to retirement, but just one piece of the puzzle alongside the age pension, housing and other savings,” Milliman said.

“Of the three retirement pillars (the age pension, super and private savings), [the age pension] is by far the largest.

“Given the average super balance at retirement in 2013-14 was $292,500 for men and $138,150 for women (and median figures far lower at $100,000 for men and $28,000 for women), it is clear that the age pension will remain a significant element of support in the near future,” the firm said.

Further, the growing probability that members will outlive their retirement savings will not be a significant issue for superannuation funds, as members who retire with low account balances or incomes will be able to fund an (albeit frugal) lifestyle until they die," Milliman said.

However, fund members with considerably higher balances – or annual incomes, which typically peak in later years – face a bigger dilemma in the form of “lifestyle risk”.

“[This is] the odds that members are unlikely to be able to maintain a similar lifestyle throughout retirement – rather than longevity risk,” Milliman said.

Helping members to tackle this risk requires funds to perform a deep analysis (including the impact of the age pension) using technology and analytics and using a range of datasets, to find out what the actual objectives of their members are, the firm said.

"This information should ultimately flow into advice, education and product design, bolstering engagement and retention along the way,” the firm said.

“This is the only path for funds that want to maximise the chances that members will achieve their personal retirement goals – and that is a more than worthy objective of super.”