Michael Rice

Michael Rice has been made an Officer of the Order of Australia (General Division) for distinguished service to business and economics, particularly to the actuarial profession, and through advisory roles.

His notable achievements and extensive service include promoting and advocating higher superannuation payments to women and public policy work that has secured a framework for better retirement options for all Australians.

A founder and executive director of actuarial firm Rice Warner, Mr Rice was named Actuary of the Year in 2017 and chaired the Actuaries Institute’s Public Policy Committee for five years from 2014. In his advisory capacity, Mr Rice has been an honorary member of the Australian National University’s Advisory Board of the College of Business and Economics since 2014 and was a board member of State Plus from 2016-2019 and a committee member of QSuper from 2009-2016.

Rice Warner’s ‘Valuing Females’ package, introduced in 2013, offered women extra benefits including flexible work conditions, paid parental leave, and crucially, an additional 2% payment of their salary into their super fund. Mr Rice took the battle for better benefits for women to the Human Rights Commission, arguing for positive discrimination in favour of Rice Warner’s women employees.

He has led submissions to government on major reviews of Australia’s financial services. These include submissions to the Henry Tax Review, Cooper Superannuation Review and Financial System Inquiry, along with submissions to Treasury, Senate Committees and the Productivity Commission.

“Mr Rice has been a powerful and persuasive advocate for essential and equitable reform in the superannuation and retirement sectors,” said Actuaries Institute chief executive Elayne Grace. “His thoughtful and incisive input is actively sought by policymakers in Canberra and by leading industry groups involved in the wealth management and retirement sectors,” Ms Grace said.

Actuaries Institute President Hoa Bui said, “Michael has been an active voice in the superannuation space for many years and through this has driven increased actuarial involvement in public policy, in order to achieve better outcomes for the community.”

Mr Rice has been involved in papers that examine the Age Pension and dependency, superannuation fund fees, projections of both the superannuation and personal investments markets, analysis of member choices, and the evaluation of retirement strategies for superannuation funds.

He has also advocated better outcomes for young savers wooed into higher-fee superannuation accounts by social media savvy marketers and he has urged the superannuation industry to identify underperforming funds with a view to improving benefits for members.

The post Michael Rice receives Order of Australia for service to actuarial profession appeared first on AdviserVoice.

The Rice Warner Group Insurance 2010 to 2013 Industry Tables, combine data sourced from 16 large Australian superannuation funds. Rice Warner has devised market-leading benchmark statistics giving greater insight into key areas such as probabilities of claim, and for Income Protection, the probabilities of ceasing to claim.

We have over 140,000 claims and 5 million members enabling us to evaluate incidence rates, termination rates for Income Protection and claim notification patterns.  This covers 43% of group insured lives.

The range of participating funds includes industry funds, master trusts and public sector funds. Participating funds remain anonymous and we have taken great care to ensure no fund is able to be identified through any results or insights.

Group insurance claims experience is a very complex area and the greater the available data volumes the more we are able to drill down to discover credible findings.

Our study has provided comprehensive coverage of:

• Detailed relativities of incidence rates and terminations rates.
• Statistics for claim reporting patterns across fund sectors, benefit types and occupation groups.
• New findings on the effect of claim reporting delays on Income Protection termination rates.
• For Income Protection, the probabilities of being on claim allowing for age and notification period.
• Full claim cause analysis across age groups, benefit types and trends over time.

We are confident our new results will make a positive difference by enabling more confident pricing decisions to be made, which benefits the whole industry.

For further information on how you can access our reports please email Simone Miller, simone.miller@ricewarner.com.

The post Group Claims Experience Study 2015 appeared first on AdviserVoice.

Jenni Baxter

The quicker to claim, the speedier the return to work for 40 percent of Australians who seek insurance benefits from their Group (Superannuation) income protection policies.

This is one of many unique insights into the underlying dynamics of Australia’s Group Risk Insurance sector, uncovered by new Rice Warner research.

The Rice Warner Group Insurance 2010 to 2013 Industry Tables, released today, combine data sourced from 16 large Australian superannuation funds. Rice Warner has devised market-leading benchmark statistics giving greater insight into key areas such as probabilities of claim, and for Income Protection, the probabilities of ceasing to claim.

“Group Insurance claims are a complex area. The greater the available data volumes, the more we are can drill down to discover credible findings,” said Rice Warner Head of Consulting and Research, Jenni Baxter.

“The discovered probabilities do not directly correspond to any one Superannuation Fund (either included or excluded from the study) but they do provide a critical framework for pricing and relative models against which actuaries can measure their Fund’s experience.”

Ms Baxter said industry benchmark statistics are more readily available for the Retail Insurance sector, whereas Group pricing actuaries have resorted to out-dated statistics from different markets or even relying on data sourced from offshore.

“The Rice Warner tables have enabled the Australian Group Life industry to access current and credible data for pricing, lifting us to world’s best practices,” she said.

“We are excited that these new results will make a positive difference, enabling more confident pricing decisions to be made that benefit the whole industry. We thank participating funds for their support.”

Key insights from the Report:

• The Rice Warner Study covers 43 percent of Group insured lives in Australia.
• Long-term Income Protection claimants who notify illness or disability within the first 6 months are more than 40 percent more likely to return to work within a year, compared to claimants reporting their disability in the second 6 months.
• Occupations also affect claim reporting delays with the delay for hazardous occupations being 60 percent higher than that for professional occupations.
• Waiting period has a significant impact on Income Protection return-to-work statistics. There is a 68 percent higher chance that a claimant on a 30 day waiting period will not be on claim within 12 months, compared with a claimant on a 90 day waiting period.
• For TPD (Total & Permanent Disability) claims, musculoskeletal claims represent approximately a third of all claims for all members (excluding younger ages, where accidents/poisons/crimes are the highest), and are at least twice as likely to be the cause of claim than from any other claim type. Mental/stress claims peak at over 20 percent of all claims for members aged 30 to 39, the highest proportion for any age band.
• Mental/stress claims feature as the most common Income Protection claim cause for middle aged people, and musculoskeletal claims are prominent among members over age 50.

The post What makes us claim? Australian first Group Insurance Industry Statistics reveal unique insights appeared first on AdviserVoice.

Michael Rice

Several pervasive myths are obscuring a clear picture of sensible reform in superannuation in Australia today. These myths have created a monumental ball of string that should be unbundled.

Once sorted, we should kill off the myths. Otherwise, as Michael Rice observes, Australia will be set up for poor retirement outcomes and superannuation policy driven by misinformation.

Australia’s superannuation system has three key building blocks:

• the Age Pension
• our mandatory employer contributions (now 9.5% of salaries)
• tax concessions to encourage voluntary contributions.

Over decades, many changes to all three have created uncertainty for people saving for their retirement.

Prime Minister Abbott tried to bring stability with his recent Captain’s Call that there will be no further changes under his government.  Unfortunately, this has led to confusion within his Cabinet and the superannuation industry as there are several reforms currently being considered.  These include the recommendations from the National Commission of Audit, the Financial System Inquiry, Treasury’s Retirement Income Review and the forthcoming Tax White Paper Task Force.

It is difficult to see how we can get meaningful reform without change to tax concessions and to the eligibility for the Age Pension.  Of course, change brings some winners and some losers – and those in the latter group all vote!

Myth #1: Tax concessions are equal

There is a perennial debate on the value of tax concessions.  Treasury provides a figure of about $32 billion but this assumes that, in the absence of any tax incentive for superannuation, people would simply draw salaries and pay tax at their marginal rates.  In practice, the removal of tax concessions on superannuation would allow the government to slash personal tax rates anyway.  Further, taxpayers would simply seek other ways of minimising their tax, possibly through negative gearing of property or shares.

One defence of tax concessions has been to show that the majority (about two-thirds) of concessions are made to taxpayers earning between $37,000 and $180,000.  However, this means the small number of taxpayers (2.3%) earning more than $180K receives most of the rest of the concessions!  So, commentators simply use the statistics which back their story…

Myth #2: Franking credits are defunct

Australia has a system of providing imputation credits for franked dividends to avoid double taxation of company profits.  There is an ongoing debate about the merits of franking credits for the economy.   One positive feature is the encouragement of patient long-term investors (including superannuation fund members and retirees) to participate in the growth of the domestic economy.

One submission to the Tax White Paper argues they should be abolished because members approaching retirement need to worry about sequencing risk and a high allocation to equities in retirement!  Of course, this is rubbish – retirees MUST hold significant levels of growth assets to protect themselves against inflation risks (and partially against longevity risks too).

Dividends (including the associated franking credits) provide a solid source of reliable income for retirees with relatively low levels of volatility.  For those retirees who are prepared to live off their income and consume capital by taking profits occasionally, they provide protection against inflation and longevity risks.

All superannuation funds should fight to keep franking credits!

Myth #3: Lump sums don’t prevail

Another commentator in a recent opinion piece in a national newspaper claimed that the payment of lump sums was the greatest problem of the Australian superannuation system.  No doubt this comment is based on the erroneous assumption that everyone takes out their money the day they retire and they are subject to sequencing risk.

Rice Warner conducted research recently for Colonial First State that showed that about 85% of the value of all retirement benefits is reinvested into pensions.  At least one-third of the balance is invested in bank term deposits (which is a different form of saving) and most of the rest was used for debt reduction (which is also a form of saving).

Further, we are often told retirees spend their money quickly to fall back on the Age Pension.  In fact, those who have account-based pensions are generally conservative about spending their money.  The average amount taken as pension payments each year is about 7%.

Myth #4: Mandatory Annuities are the panacea

From time to time, commentators repeat the error made in the Henry tax review of calling for mandatory annuitisation.  The logic is that mortality is pooled and all of the benefit will be used for retirement income since there will be no leakage from bequests.

Unfortunately, lifetime annuities have the greatest sequencing risk of all products since the price paid is subject to prevailing interest rates on the day of retirement.  They are also relatively poor value as a long-term investment.

The best time to buy these products is late in life (say from age 80) when the product and utility value is better.

Myth #5: Bequests

Several commentators have considered that there is ‘leakage’ from the system if benefits are not used for retirement incomes.  The argument is that benefits need to be used for retirement incomes or the concessions made are wasted.

Clearly, lump sums have the potential for leakage, though as shown above this is not the case in practice.

Another form of leakage is when a retiree dies leaving a residual benefit which is passed on as a bequest for family or charities.  As funds develop better ways to pool mortality, the amounts left will reduce over time.  However, the logical way to address large bequests is to claw back concessions by adjusting the tax rate for benefits passed to non-dependents on death in retirement.  A variation could be to allow the benefit to pass tax-free to a superannuation account of a family member.

Public Policy

Rice Warner is of the firm belief that industry must kill off the many myths and recognise that they can lead to poor public policy.  As more than half of people retiring this year are going to live for more than 20 years, they need to share in the equity risk premium provided by growth assets.  Many current solutions solve the wrong problems and this will lead to a reduction in living standards through lower earnings over the retirement years.

The post Superannuation myths unbundled appeared first on AdviserVoice.