Melissa Fuller

Leading consultants to the financial services and superannuation sector Rice Warner has outlined the scale of the retirement incomes bulge facing Australia’s ageing population, its policymakers, superannuation funds and product manufacturers.

The next 15 years will see more Australians leaving or winding down from the workforce than entering it. On Rice Warner analysis, Australia’s ageing nation will comprise two million men and 2.3 million women in retirement drawing a pension from their superannuation savings by 2029.

This represents a shift to around 40 per cent (or $1.3 trillion – in 2014 dollars) of Australia’s retirement savings assets being converted to some form of retirement income stream. Currently that number sits at 30 per cent (or $492 billion of total superannuation assets) in today’s dollars.

At a personal level, many retirees will not have adequate savings for their retirement. Rice Warner’s latest Retirement Savings Gap research, commissioned by the Financial Services Council, measured (at 30 June 2013) a $727 billion savings gap. This is $67,000 per person less than the amount required for an ‘adequate’ retirement, which would pay retirees up to their life expectancy (more than 20 years).

Compounding this issue is longevity risk: half of Australia’s retirees will live well beyond their life expectancy age.

“It’s great we are all living longer, but the fact is too many retirees will simply run out of money and be forced back on the Age Pension,” said Rice Warner CEO Michael Rice, who has led Rice Warner’s many contributions to the Abbott government’s Financial System Inquiry (FSI), chaired by Mr David Murray.

The FSI’s recent interim report specifically mentions the issue of retirement savings policy, calling for solutions to the problem. “The picture of Australia’s retirement demographic ‘bulge’ is not new. But new ways are needed to address the underlying problems of adequacy, funding and product design – even the fundamental need to deliver people more choice, greater dignity and a better standard of living in retirement,” Mr Rice
said.

“The problem represents a looming challenge requiring a comprehensive range of solutions from industry and government. Our own investigations show today there is not one Australian superannuation fund provider that has in place the right default retirement incomes package to meet the wave of retirees preparing to shift their super into pensions,” he said.

The Rice Warner Retirement Incomes Solution

Mr Rice said the current default option of the superannuation industry is to treat retirement income as handing over a lump sum payment to members when they retire.

“Superannuation fund members are currently given no default option for managing this lump sum. We believe there are better ways to approach this, and have devised what we think is the first comprehensive solution,” Mr Rice said.

Melissa Fuller, deputy CEO, Rice Warner and a leading advocate for the unique retirement savings needs of women in Australia, said the great anomaly is that Australia has a world class retirement savings system but “lags when it comes to an effective and comprehensive retirement incomes system.”

Ms Fuller said the Rice Warner Retirement Incomes Solution, which effectively takes into account the needs of members through the various phases of retirement, provides a comprehensive alternative.

“Rice Warner believes the essential solution is to separate the money needed for any lump sum at retirement and to invest the balance long-term to provide inflation and longevity protection,” Ms Fuller said.

“The account-based pension is converted to a distributing trust so members can derive income from stable fund earnings (and any tax refund from franking credits). Meanwhile, the capital would be projected to grow steadily in real terms. The risk of market volatility impacting the underlying assets is also reduced as the member is not spending his or her capital.

“We’ve received keen interest from some leading superannuation funds about implementing the Rice Warner Retirement Incomes Solution,” she said.

“Our thinking is based on many years of data and insight in this sector, and draws upon numerous submissions, research reports and intellectual property invested by our firm on behalf of clients and various government and independent inquiries held during that time,” she said.

‘We look forward to continuing our contribution to the debate in Australia, particularly as these issues become ever more prevalent in the future planning for the national interest.”

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Rice Warner introduces female super ininiative.

Consulting firm Rice Warner has adopted an innovative approach to bridging the retirement savings gap for its female employees. The initiative addresses a fundamental gender imbalance that affects the retirement incomes of a majority of Australian female employees.

Rice Warner today released details of what is believed to be a first for an Australian business – offering its female employees a package of benefits designed to bring their expected retirement savings outcomes into line with those of their male counterparts.

The new arrangements commenced on 1 July 2013. It means Rice Warner’s female employees will be provided with a package of benefits – including flexible working conditions, generous paid parental leave, superannuation payments and long service leave accrued during parental leave, access to an educational program – and an additional superannuation payment of 2% of salary.

Rice Warner Deputy CEO, Melissa Fuller, who led the firm’s research into the retirement savings gap for females, said her investigations helped spark her interest to uncover a practical solution suitable for Rice Warner, in respect of its own female staff, to help redress the financial wellbeing challenges faced by females in retirement.

“From the outset Rice Warner saw an opportunity to tackle a systemic issue that has a broad impact on Australian females and society, but which also directly impacts our own female employees. Our business enjoys a leading position as an independent voice in the superannuation sector, so naturally it was an area we felt equipped to explore, canvass some options and adopt our own policy,” said Ms Fuller.

“As a consulting firm advising superannuation funds, Rice Warner is an expert in the field. We understand the underlying data and statistical evidence that clearly shows a stark reality that most females fall behind males in their level of retirement savings.”

“We also wanted to make a difference by showing others that with resolve, the savings gap can be dealt with. I am proud of the way our entire team has supported this package,” she said. Ms Fuller also consulted with the Australian Human Rights Commission to ensure that the initiative does not discriminate against males. The Commission considered that the package of measures was likely to be considered a special measure designed to achieve substantive equality between men and women.

We can now move forward with confidence showing other Australian employers they too can proactively support similar arrangements for their staff. Ms Fuller, with the support of Rice Warner senior management and the Board, said it makes sense to leverage the firm’s superannuation expertise and understanding of the issues to improve the outcomes for its female employees.

“This is an important employee benefit, designed specifically around the issues females face in saving adequately for their retirement. Of course we can’t control inequities within society or the superannuation system, but we are pleased to show positive change is possible by focusing on those areas where we can make a material difference”.

Superannuation Savings Gap Facts

• The total female savings gap is $383 billion.
• On average, 65 year old females today retire with approximately $40,000 less than 65 year old males.

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