Elayne Grace

We recognise the Government faces significant fiscal constraints and competing priorities in an uncertain economic environment. Within this context, the Actuaries Institute’s 2026-27 Budget submission highlights five critical areas to strengthen Australia’s long-term economic and social foundations:

1. Increased investment in climate risk adaptation and resilience, recognising the growing fiscal and social exposure from natural disasters and the cost-effectiveness of proactive adaptation measures.
2. Implementation of the National AI Plan and AI Safety Institute to build sovereign capability while managing risks.
3. Reform of private health insurance and broader health systems, including addressing mental health funding fragmentation and NDIS sustainability.
4. Supporting a modernisation of life insurance products to improve consumer outcomes, including a Federal recommitment to a product rationalisation framework and support for stamp duty revisions.
5. Measures to address intergenerational equity, including reforms to housing affordability and the tax system.

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Elayne Grace

The Actuaries Institute welcomes the Federal Budget’s cost-of-living relief and equity measures but believes more investment is still required to supercharge the AI economy and to address climate change.

Please attribute the following comments to Actuaries Institute CEO Elayne Grace:

Cost of living and equity measures

“The Institute welcomes cost of living supports, especially the further increase to Commonwealth Rent Assistance, and reductions to income tax and tertiary education debt.

“As highlighted in the Institute’s report, Not a level playing field, safeguarding income and intergenerational equity is a significant societal issue that is likely to worsen without intentional policy.”

Climate adaptation and transition

“The Institute welcomes the substantial public funding, investment incentives and other forms of support for disaster resilience, climate adaptation and the transition to a clean energy economy.

“But we reiterate a significant uplift in public sector investment is required, as well public-private sector partnerships, to close the adaptation finance gap.

“To manage the uncertainty around climate adaptation and transition, Government should accompany these policy and investment programs with rigorous, highly transparent monitoring frameworks. We need to regularly review the success of adaptation and transition measures and stay agile.”

Artificial Intelligence (AI)

“AI creates immense opportunities to benefit Australian citizens, organisations and society. However, the same technology when implemented poorly or maliciously can cause substantial harms.

“The Institute supports the $40 million funding announced to help Australia prepare for and embrace AI technology. But greater AI investment and clarity around policy is required to supercharge and secure Australia’s digital future.”

Retirement system

“While the Institute welcomes the modest measure to include superannuation in the Government’s Paid Parental Leave scheme announced earlier this year, we call on the Government to consider what changes to superannuation and retirement income tax settings would help put our system on a fairer and more sustainable footing for current and future generations.

“With an ageing society and a large swell of Australians approaching or in retirement, a broad framing is required. A national longevity strategy linking together our health care, aged care, the Age Pension and superannuation systems – and making sure these are all widely accessible – will help more Australians to live with dignity in retirement.”

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Elayne Grace

The Australian Human Rights Commission (AHRC) and the Actuaries Institute (Institute) said while artificial intelligence (AI) promises faster and smarter decision making, safeguards are needed to prevent potential discrimination.

A Guidance Resource issued today and prepared jointly by the AHRC and the Institute is designed to help actuaries and insurers to comply with the federal anti-discrimination legislation when AI is used in pricing or underwriting insurance products.

“This collaboration demonstrates the complex nature of the issues facing society, and the need for a multi-disciplinary approach, particularly where data and technology are used to shape the provision of fundamental services such as insurance,” says Elayne Grace, Chief Executive of the Actuaries Institute.

“With AI increasingly being used by businesses to make decisions that may affect people’s basic rights, it is essential that we have rigorous protections in place to ensure the integrity of our anti-discrimination laws,” said Lorraine Finlay, Human Rights Commissioner.

“But without adequate safeguards, there is the possibility that algorithmic bias might cause people to suffer discrimination due to characteristics such as age, race, disability, or sex,” Ms Finlay said.

“This Guidance Resource, prepared in conjunction with the Actuaries Institute, provides practical guidance for insurers on complying with the various federal anti-discrimination laws when using AI,” Ms Finlay added.

The guidance was developed after a 2021 report by the AHRC that looked at the human rights impacts of new and emerging technologies, including AI-informed decision making.

One of the recommendations of that report was that a set of guidelines be developed for use by government and non-government organisations on complying with federal antidiscrimination laws when AI has been used in decision making.

The Actuaries Institute, the peak professional body representing the actuarial profession, strongly supported this recommendation and approached the AHRC with an offer to collaborate.

A survey of Actuaries Institute members this year found at least 70% indicated the need for further guidance to comply in the emerging area/wider use of AI.

Ms Grace said there was an urgent need for guidance to assist actuaries in the exercise of their professional duties, noting this Resource should also provide comfort to consumers that their rights were being protected.

“Australia’s anti-discrimination laws are long standing but there is limited guidance and case law available to practitioners,” Ms Grace said. “The complexity arising from differing antidiscrimination legislation in Australia at the federal, State and Territory levels, compounds the challenges facing Actuaries, and may reflect an opportunity for reform.”

Ms Grace said several intersecting megatrends made the lack of guidance more problematic for actuaries. These trends include the explosive growth of ‘big data’, increased use and power of artificial intelligence and algorithmic decision-making and growing and changing consumer awareness and expectations about what is ‘fair’.

“Actuaries seek to responsibly leverage the potential benefits of these digital megatrends for the consumer, society and business. To do so with confidence, however, requires authoritative guidance to make the law clear.”

Actuary Chris Dolman, who led the Institute’s contribution to the preparation of the Guidance Resource as a representative of the Data Science Practice Committee, said it lists some strategies for insurers in relation to data used by AI systems to address algorithmic bias and avoid discriminatory outcomes.

Mr Dolman said this includes rigorous design, regular testing and monitoring of AI systems. It also provides several practical tips for insurers to help minimise the risks of a successful discrimination claim arising from the use of AI for pricing risk.

“In the insurance context, AI may be used in a wide range of different ways, including in relation to pricing, underwriting, marketing, customer service, including claims management, or internal operations,” he said.

“This Guidance Resource focuses on the use of AI in pricing and underwriting decisions, as these decisions are already likely to use AI and by their nature will have a financial impact which may be significant for an individual. Such decisions may also be more likely to give rise to discrimination complaints from customers. However, many of the general principles outlined may also apply to the use of AI-informed decision making in other contexts,” Mr Dolman said.

Read the full paper.

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Annette King

The Federal Government’s revised 2022-23 Budget, delivered tonight by Treasurer Jim Chalmers, contains fiscally responsible measures which are essential at a time when the nation’s growth trajectory confronts severe domestic and global challenges, the Actuaries Institute said.

The Institute believes the Budget acknowledges myriad challenges including rising prices due to inflation, an extremely large public debt burden and significant funding demands across the domestic economy including the NDIS, aged care, infrastructure, education and healthcare.

“Standout features we commend in this budget are the further strengthening of commitment to address climate change to improve resilience, support for greater access to housing, and setting the stage for the move to well-being budgets in future,” said Annette King, Actuaries Institute President.

“While possible reassessment of tax cuts has been deferred, overall, the Budget has a commitment to fairness and equity that are guiding principles for the Institute when we assess major public policy developments,” Ms King said. “It is especially pleasing to see the broadening of focus beyond economic and fiscal outcomes to also consider outcomes in housing, education, social programs, the environment, and health and disability.”

Amid forecasts of a nearing global recession, the Budget papers show that Australia’s economic performance remains impressive, with growth of 3¼% expected this financial year before slowing to 1½% next year. Unemployment remains low at 4½% through to 2023/24.

Treasurer Chalmers said government debt has risen sharply, with further pressure on the domestic economy due to high domestic and global interest rates. Inflation is expected to peak at 7¾% later this year and then gradually ease to 3½% through 2023-2024.

Referring to longer term structural issues, Actuaries Institute Chief Executive Elayne Grace, said: “The Government will need to tackle economic and social pressures arising from the ageing population, demands on the health, disability and education systems, and concerns about intergenerational wealth distribution including from superannuation and retirement benefits now available from the tax system.”

“The Institute strongly welcomes the Government’s increased statements of commitment to reducing greenhouse gas emissions and investment to help achieve that goal,” Ms Grace said. “In particular, the Institute commends the support for greater take up of electric vehicles, the Powering Australia Plan, and infrastructure around the Climate Change Authority, Safeguard Mechanism and Annual Climate Change Statement to Parliament.

“She said these Budget measures set Australia on a solid path to achieving its global commitments and help reduce the worst risks of a changing climate. “We know that vulnerable Australians are especially exposed to these risks through, for example, the most affordable housing being in the most climate exposed areas,” Ms Grace said.

“The frequency of extreme weather events and natural disasters across the country in recent years highlights the need for collaborative and urgent action to improve resilience.”

The Institute also welcomes the Government’s policies around housing, and in particular to further encourage downsizing through changes to the assets and income tests and super fund investment in affordable housing. Importantly, these measures will help address housing supply issues. The Institute notes because super funds must act in members’ best financial interests, it is a high bar for funds to invest in affordable housing. However, with the continued projected growth of the superannuation sector and economic role it plays as sophisticated investors, it is important to find win-win solutions to address Australia’s most pressing challenges. The Institute looks forward to seeing the policy details as they develop and strongly supports the foreshadowed consultation with industry stakeholders.

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Elayne Grace

The Actuaries Institute this month celebrates 125 years of guiding government, business and the wider community through insight, independent advice, and rigorous data analysis.

From a small group of like-minded individuals in 1897 to the diverse, successful organisation it is today, the Institute has always focussed on what data can predict about the future.

“Today is the age of the actuary because it is the age of data,” Actuaries Institute President Annette King said. “And our relevance continues to increase as artificial intelligence, machine learning and data science change the world we live in. Actuaries will be there to harness, integrate and question that data; to ensure it is used wisely and well – and for good.”

Elayne Grace, Chief Executive Officer of the Actuaries Institute, said the Institute had served the public interest since it began – from underpinning financial institutions like life insurance companies and friendly societies to the varied services actuaries now offer across insurance, superannuation, and consulting but also in areas of public policy such as climate change, intergenerational equity, data ethics and cyber security.

“When we began, we protected Australians from an uncertain future. Our professionalism, our independence, and our ability to wrest the truth from data helped people and organisations to plan and adapt,” Ms Grace said. “Our essence has not changed, but everything else has and we have continued to evolve with it.”

Australian actuaries work in a wide range of disciplines – insurance, superannuation, banks, data science, government, risk, climate change, energy, health, fintech, finance and investment. They are strategy-focused leaders who work with the exploding world of data and data management techniques to balance stakeholder interests, manage risk, optimise outcomes, price products and solve complex business and social problems.

Increasingly, they drive public policy. “Actuaries’ rigorous skills work in public policy because we combine them with a tradition of independence and an ethical framework that has always been built on a sense of equity,” Ms King said.

The Institute now boasts 5500 members, 50% under 35 years of age and 25% working in Asia, having started with 17 members in 1897. The member base is 34% female and 66 % male, but with increasingly strong female representation at the highest levels.

Annette King is the eighth female president; the first was Catherine Prime, appointed in 1991, and there have been 5 in the past 10 years. Hoa Bui was the seventh female and first Asia-born president when appointed in 2020. The Institute currently has a female CEO (Elayne Grace), with the first CEO being Catherine Beall in 1999.

Professor Alfred Pollard established the first Actuarial Studies degree at Macquarie University in 1968 and now seven Australian and one New Zealand university offer actuarial training accredited by the Institute. More than 700 members volunteer their time on the Institute’s committees, task forces and working groups – to shape the profession and engage with industry, government, academia, and the media.

“Wherever you stand in this profession, you stand on the shoulders of giants,” said Ms King, “the presidents, councillors, volunteers, and countless others who led a profession that continues to help shape Australia. We are who we are today because of their work and their traditions of excellence, integrity, curiosity, innovation – and courage.”

The Institute will be hosting the International Congress of Actuaries, a global meeting of the brightest actuarial minds, in Sydney next May/June. The five-day ICA2023 will bring together 500 speakers from more than 50 countries to discuss data analytics and AI, climate change, cyber risk, the rise and rise of Asian financial services, the impact of IFRS 17, the age of the consumer and many other topics.

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Chris Dolman

The Actuaries Institute has named Chris Dolman 2022 Actuary of the Year.

Chris is considered by his peers as the leading actuary in data ethics, sharing his knowledge widely through submissions, thought leadership, and acting as a sounding board for complex issues. His work focuses on the practical application of ethics in automation and artificial intelligence, and the social impact of data availability and automation in insurance.

Actuaries Institute President Annette King said Chris has built strong relationships beyond the actuarial community and is highly regarded by policymakers, regulators, academia and other thought leaders.

“Chris has played a significant role in thought leadership and promotion of the actuarial profession in ethics, data analytics, and discrimination,” Ms King said. “He is committed to good regulation to ensure that policy keeps pace with technology changes and meets the needs of society.”

Chris is Executive Manager, Data and Algorithmic Ethics at IAG, helping to ensure that modern decision-making algorithms and other advanced uses of data are designed and implemented in an ethical, responsible and thoughtful way. He is also a research affiliate at ANU’s Humanising Machine Intelligence group and contributes as a Fellow to the work of the not-for-profit Gradient Institute.

He is a founding member of the Institute’s Data Analytics Committee, Chair of the Institute Working Group for the collaboration with the Australian Human Rights Commission (AHRC) and a member of the General Insurance Practice Committee. He also chaired the Actuaries Institute’s Anti-Discrimination Working Group.

In his current work with the Australian Human Rights Commission, he is producing guidance material on artificial intelligence and anti-discrimination in insurance. This work will culminate in an important joint Actuaries Institute/AHRC publication which will be of wide public interest. The work will help to clarify what is discriminatory and how actuaries and insurers should act.

Commenting on his award, Chris remarked that applying his mind to data and AI “appeals to the mathematician in me, but one with a social conscience. I like to look into how AI affects the world and what social norms we want to encode in the models we build.”

“There seem to be a lot of unresolved problems in the use of data – there are conflicting ideas of fairness put forward, and what constitutes good versus poor conduct is often still vague,” he said. “We have taken the opportunity as a society to build automated systems. With human beings we do not necessarily have much control over their decisions, but with automated systems we do. We can encode what we want into these systems, giving us the opportunity to improve outcomes, if we can decide and agree on what we want.”

“We’ve had laws and regulations on discrimination for a long time, but guidance about what discrimination looks like in automated systems is still nascent.”

Chris has written numerous conference papers including winning the 2020^[1] and 2021^[2] ‘Melville All Actuaries Summit Prize’ for papers he co-authored, and was named among the ‘Top 100 Innovators in Data & Analytics’ in 2022 by Corinium Business of Data. Chris also won the ‘Spirit of Volunteering Award’ in 2020, acknowledging his significant contribution to the profession.

Actuaries Institute Chief Executive Elayne Grace thanked Mr Dolman for his generous contributions to the actuarial profession and Industry: “Chris has had a long-term interest in the interplay between artificial intelligence, automation and ethics in insurance. He works with complex data sets to provide insights into the intended and unintended consequences of the digital age.”

The Actuary of the Year is a prestigious award presented to a member of the Actuaries Institute who has made a notable contribution to the community and has brought credit to the profession.

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Notes:
[1] https://actuaries.logicaldoc.cloud/download-ticket?ticketId=0d5870d6-2acc-4c74-8bce-d01afd0eba8f
[2] https://actuaries.logicaldoc.cloud/download-ticket?ticketId=5c892d7c-d02f-4fb7-a2c9-aa82a671c6fb

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Elayne Grace

Superannuation funds will soon get more ‘hands on’ with helping members convert their super into retirement income once the new Retirement Income Covenant (RIC) takes effect, according to a paper issued today by the Actuaries Institute.

The paper, from senior actuaries Jim Hennington and Andrew Boal, is designed to help the superannuation industry to navigate the Covenant, which puts the onus on super funds to develop a strategy for members who are retired or close to retirement.

In their Dialogue Paper^[1], A Framework to Maximise Retirement Income, the authors have developed a framework to help meet what they see as a gap in clarity for superannuation trustees.

Difficulties arise for fund members in the group they call middle Australia – retirees who want a lifestyle more than that provided by the Age Pension, with extra spending during the healthier years of early retirement, but who do not want their super and investment income to run out before they die.

“When you retire, your salary or wage stops. From that point on, you need to fund your lifestyle using your own savings plus any Age Pension income that you might become entitled to,” said Hennington.

“For very wealthy people, this might be easy. For those on lower incomes, it can also be straightforward – if they are managing on the income provided by the Age Pension. But for many people in between, which we refer to here as middle Australia, the maths to get this right is really difficult.”

“Applying this over what could be a 30-year time frame in retirement is complicated and requires new thinking. Trustees will have to be more hands-on and not leave the lifespan risk issues to members,” he said.

The paper outlines metrics that can be used by trustees to determine period of retirement end date, safe retirement income, expected retirement income and retirement income risk. It shows how drawdown strategies based on the period of retirement ending at a fixed age do not maximise members’ retirement incomes.

“This starts to raise the question: How can superannuation funds measure retirement income when we do not know how long that income needs to last?”

Under changes to superannuation legislation enacted in February 2022, trustees must put in place a retirement income strategy and publish a summary by 1 July 2022.

The strategy must outline how they will help members who are retired or nearing retirement, balancing three main objectives:

• maximise their expected retirement income
• manage expected risks to the sustainability and stability of their expected retirement income, and
• have flexible access to expected funds during retirement.

Hennington said “the RIC puts the onus on the super fund to help members balance their risk versus having higher expected income. Many retirees may be willing to take some investment risk and/or longevity risk to increase their retirement income.”

The paper argues that trustees could use a CPI-indexed lifetime income stream product (annuity), similar to UK pension fund projections, as a benchmark for risk versus reward decisions. These products represent a ‘safe’ option available for members to convert super into income that lasts for life.1 The pooling of longevity risk that occurs with lifetime income streams and annuities, can enable a higher than otherwise annual income to be delivered for each member for their lifetime.

The Government’s earlier Financial System Inquiry and Retirement Income Review observed retirees can combine new types of products to generate up to 30% more income. For example, an investment-linked lifetime income stream could simultaneously:

• deliver higher expected income, and
• do this without any increase in the risk of outliving their savings.

When a superannuation trustee decides how much risk ‘middle Australia’ members can be exposed to in retirement, they should consider the impact of those risks and, in particular, understand how much downside would cause a detrimental effect on the retiree’s standard of living.

Elayne Grace, Actuaries Institute Chief Executive, said: “having a robust and effective retirement income system is crucial for the wellbeing of all Australians.”

“The passage of changes to super legislation, to give effect to the retirement income covenant, was a significant milestone in providing retirees with a reliable, secure and adequate income, with the aim of enabling retirees to live with dignity in retirement.”

“Actuaries play a hugely significant role in providing guidance on models to deliver this outcome,” Ms Grace said.

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[1] https://actuaries.logicaldoc.cloud/download-ticket?ticketId=397f9c45-b94b-4499-a075-0377088e9df8

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Elayne Grace

The Federal Government’s 2022-23 Budget, delivered tonight by Treasurer Josh Frydenberg, outlines measures to guide Australia’s economy to continued prosperity but longer term public policy changes will eventually need to be addressed, the Actuaries Institute said.

It said the Government delivered a budget that reflected the strength of the economy, seeking to reduce the high debt burden while addressing immediate cost of living pressures for low-income earners and retirees.

The Actuaries Institute welcomed the digital economy package outlined in the Budget, tax offsets and cost of living payments, and limited changes to superannuation.

“Specific policies designed to deliver better outcomes for women, low-income earners and retirees will improve equity for all Australians,” said Actuaries Institute President Annette King. “But more needs to be done on climate change, and mitigation for those in flood and fire prone areas.”

Ms King welcomed policies centred around Australia’s digital economy and changes to employee share ownership schemes that will benefit start-ups, measures she said would result in “greater business and professional innovation”. The Institute urges the Government to be ambitious in seizing the opportunities of the digital and data revolution.

The Institute commended the Government’s digital economy announcements:

• $1 billion Technology Investment that provides a tax deduction bonus to small businesses that digitalise their operations
• $18.6 million to protect Australia’s national interest in critical and emerging technologies standards
• $3.9 million to support women in mid-career transitions to the tech workforce.

Ms King added, “While the budget is dominated by hip pocket measures which might correctly be viewed through an electoral lens, it does also meet most of the fairness and equity objectives that the Institute looks for when assessing major public policy announcements and programs.”

The Actuaries Institute strongly supports the $6.7 million for ongoing encouragement of women in STEM, and $3.9 million to support women in mid-career transitions to the tech workforce. “We also welcome the Government’s commitment to narrowing the gender pay gap and the gender superannuation gap by continuing to support increased workforce participation; this has long been a priority of the Institute. However, the lack of announcement to pay SG on paid parental leave continues to disappoint,” Ms King said.

Actuaries Institute Chief Executive Elayne Grace said that a more robust and effective retirement income system that better links public and private sectors, along with sound and accessible advice for retirees, should be central to the Government’s longer-term agenda.

“This is crucial for the wellbeing of all Australians,” Ms Grace said. “The objective of the retirement system must be to provide for retirees so that they have a reliable, secure and adequate income, to live with dignity in retirement.”

“For many years superannuation and retirement settings have been subject to frequent and significant changes. A period of consolidation to implement the already significant reforms underway, including the ongoing adaptation to the Your Future, Your Super changes (especially the ‘performance test’) and introduction of the retirement income covenant from 1 July 2022 is welcomed.”

The Institute also welcomes the announcement earlier this week the Government will consult to ensure the non-arm’s length expenditure and income rules will operate as originally intended and not disproportionately affect superannuation member balances.

“The Institute notes the Budget emphasises significant spending on disaster recovery over proactive investment in resilience, mitigation, and adaptation measures to reduce such future outlays.

“While this is necessary in the current environment in which many Australians have very recently been impacted by natural disasters, greater investment in resilience measures is necessary for long-term sustainable impact,” Ms Grace added.

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Ian Laughlin

Two actuaries have developed a skill and capability checklist to help Australian bank and insurance companies appoint Directors with the right qualifications to prevent misconduct uncovered by the Hayne Royal Commission.

Barry Rafe, a former Actuaries Institute President and experienced director and board advisor, and Ian Laughlin, a former APRA deputy chair, said their Dialogue^[1] paper, The Special Needs of Financial Services Boards, provides a practical toolkit for Board appointments, specifically aimed at bank and insurance companies.

The Hayne Royal Commission revealed misconduct in the sector that resulted in the resignation of chief executives, Board members and Chairs, along with about $10 billion in payments to right wrongs. It highlighted acute failures. The Dialogue paper asks whether Directors enabled that behaviour because they failed to understand their businesses.

Financial service businesses are extremely complex, with long-term contractual obligations to customers, significant information asymmetry, short-term profit pressures and frequently, a third party intermediary between the business and customer. Customers often have a large financial exposure to these institutions.

And while there has been substantial change in the membership of financial services company Boards since Royal Commissioner Kenneth Hayne handed down his findings in February 2019, there is evidence that the misconduct identified reflects Directors’ lack of knowledge, “clearly reflecting systemic gaps between the essential Board skills and capabilities, and Board appointments”, the paper states.

Identifying those gaps is essential to ensuring mistakes are not repeated. The Dialogue provides an aid to help financial services Boards recruit the correct mix of Directors. It states that assessment for a new Board member should be considered within a set of clearly defined criteria, and “if not, why not?”

Using the aid would likely lead to a Board with at least three Directors with deep operational experience, earned working in the financial services sector. These Directors should have handson experience to help guide them through the trade-offs management routinely make when running a bank or insurance company.

Boards should include Directors from other sectors; the Chair should be a former CEO; and those with ‘golden’ or unblemished careers may not be as valuable to the Board as those who have survived an insolvency or major crisis.

“Risk aversion to Director selection may result in Boards lacking Directors with foresight for emerging challenges and a lack of experience to be able to effectively recognise and manage them,” the paper states.

Directors must understand broader community expectations and provide ethical leadership.

Mr Rafe said Boards are not made overnight. “They evolve over time, as Directors come and go.” To continue to remain effective, “Boards therefore need to have a long-term plan involving Director assessment and skills/capabilities matching for the changing needs of the organisation.”

Financial services profits come from leveraging other people’s money, remuneration is high and linked to profits, and issues may take years to emerge clearly. Therefore, the Board must closely consider management priorities, decisions, behaviour, and culture.

“Boards are obliged to act in the best interests of the company but in financial services there are other legal and moral obligations to protect the interests of customers,” Mr Laughlin said. “The skills and capabilities of the Board and individual Directors can have profound implications for conduct and culture.” Key capabilities include understanding customer outcomes. Boards must be collegial within a high-trust environment that allows individuals to contest key information. Risk appetite and management must be well understood from the customer’s perspective.

Elayne Grace, Actuaries Institute Chief Executive, said a growing number of actuaries sit on Australian and international company Boards. They bring skills that include objectivity, independence, and good governance, which are part of the profession’s rigorous training.

President Jefferson Gibbs noted that actuaries have strong analytical training and bring those skills to Boards and senior executive ranks. “As businesses become more complex, which is a given, actuarial skills and highly ethical behaviour must come to the fore in managing some of our biggest and most complex corporations.”

Read The Special Needs of Financial Services Boards.

———

[1] The Dialogue is a series of papers written by actuaries and published by the Actuaries Institute. The papers aim to stimulate discussion on important, emerging issues. Opinions expressed in this publication are the opinions of the paper’s author and do not necessarily represent those of either the Institute of Actuaries of Australia (the ‘Institute’), its members, directors, officers, employees, agents, or that of the employers of the authors.

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Elayne Grace

Retirement income for Australians, which rests on the three pillars of compulsory superannuation, a publicly-funded Age Pension, and voluntary savings, must undergo significant reform to be simpler, more efficient, and equitable, a year-long policy review from the Actuaries Institute said.

The Institute’s recommendations are set out in a just-released policy document, Securing Adequate Retirement Incomes for an Ageing Australia.

More than 200 actuaries provided feedback and advice, with a core group of 40 from three high-level public policy working groups, making specific recommendations. It is the Institute’s most comprehensive public policy review of retirement savings.

“Having a robust and effective retirement income system is crucial for the wellbeing of all Australians,” said Actuaries Institute, Chief Executive, Elayne Grace. “The objective of the retirement system must be to provide for retirees so that they have a reliable, secure and adequate income, to live with dignity in retirement.

“There are equity and intergenerational fairness issues, including for those excluded from the superannuation guarantee,” Ms Grace said. “Gaps need to be addressed. While the system is sound and broadly sustainable, it is widely recognised that there is scope for further reform to improve outcomes.”

The federal Government is currently consulting on the development of a retirement income covenant, to help retirees effectively plan for retirement. The Actuaries Institute strongly supports this covenant, coupled with a clear objective for the retirement system as a whole.

The Institute drew on Australia’s leading actuaries, working within the Institute’s Superannuation and Investments Practice Committee, the Retirement Incomes Working Group, and the Retirement Strategy Group to develop its set of recommendations.

The policy document considers the level of the superannuation guarantee in the context of overall retirement adequacy; how provision of guidance and advice results in better use of super savings; greater flexibility for the role of the family home in retirement income provision, coupled with its inclusion (above a certain threshold) in the Age Pension means test; preservation of superannuation savings and greater support for renters for whom super and the Age Pension can fall short. It also supports continued development of lifetime retirement income stream products that would offer better outcomes for many retirees.

“The ‘three pillars’ of compulsory superannuation, the Age Pension and voluntary savings mean that individuals are required to make complex choices about how much to save and consume, and how to invest,” Ms Grace said. “We support simplifying Age Pension means testing, improving the interaction between the retirement income and aged care systems, encouraging innovation in retirement products, and developing best practice in the provision of financial advice and guidance.

“We would also like to see structural changes such as the removal of disincentives for older Australians who want to continue to work, and greater flexibility for the role of the family home in retirement income provisioning.”

Andrew Boal, Convenor of the Actuaries Institute’s Retirement Strategy Group, said Government changes to its supply and demand side policies would improve system efficiencies in delivering retirement incomes to Australian retirees for the rest of their and their partner’s lives. These include:

• a covenant, already slated, which requires super funds to have a retirement strategy and solutions that are appropriate for different member cohorts
• incentives that encourage retirees to take part of their super as a lifetime income stream and disincentives for those who want to leave large bequests from super, and
• accessible and affordable financial advice and guidance at the point of retirement.

Mr Boal said one of the Government’s most controversial policies – the level of the compulsory superannuation guarantee, currently set at 10% of earnings – involves a set of complex tradeoffs. Community support is the key to future changes.

“The level should not be so low that Australians can’t accumulate enough retirement savings, this is against the objectives of the superannuation guarantee and comes at a cost to future generations of taxpayers,” Mr Boal said. “But broken work patterns, involuntary retirement, home ownership, mortgages and debt at retirement, longevity improvements and health needs are also factors,” he said. He added that improving equity within the retirement income system, including addressing concerns for specific groups that are adversely affected by aspects of the design of the system, is a key plank of the Institute’s recommendations.

“There is a large gap in outcomes for those who do and those who don’t own their own home at retirement,” he said.

“There should be greater assistance for retirees who rent. The system favours homeowners; for example, the principal residence is wholly exempt from the Age Pension asset test.”

One recommendation involves consideration that a portion of the value of the home be included in the asset test, while noting that there are significant variations in home values across Australia. The Institute also warned against the growing number of retirees who use part of their super to pay off a home loan, or other large debts.

“The adequacy of the system is now being undermined by the relative ease for older Australians to obtain a mortgage with a long outstanding term”, the report states. “Superannuation benefits are intended to be used for retirement living rather than secure mortgages.”

Low savings balances for women, who typically retire with super balances that are at least 40% lower than men, must also be addressed.

Gig workers, and other self-employed workers who may miss out on super entirely, should be considered; super should be paid on paid parental leave; and super must be properly considered in divorce settlements. Equity would also be improved if workers received the SG they are entitled to at the same time their wages are paid. Overtime should be included when calculating the SG rate.

Ms Grace said the Actuaries Institute’s Public Policy Statement highlights key areas for reform. She said the Institute, as a professional body, holds the public interest or common good as a key principle when developing policy.

“Actuaries have a deep and long-standing expertise in superannuation and retirement incomes,” Ms Grace said. “We recognise having the right policies in place is crucial for the retirement system and for intergenerational equity. These are the issues we think need priority for reform.”

Read the Public Policy Statement, Securing Adequate Retirement Incomes for an Ageing Australia.
Read the supporting document.

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