australian superannuation: a statistical outlier oecd-abs workshop on pensions canberra ross clare,...

Australian superannuation: a Australian superannuation: a statistical outlierstatistical outlier

OECD-ABS Workshop on Pensions

Canberra

Ross Clare, Director of Research, ASFA

Wednesday, 24 April 2013

Australia is different, in a good way

Pension assets relatively large High coverage of workers in private pension schemes Bulk of members are in defined contribution schemes Relatively high investment exposure to equities

Assets in superannuation [private pensions]

$A1.5 trillion in assets in 2013 $A210 billion in unfunded DB liabilities in 2011 $75 billion assets in Future Fund in 2011

Australia compared to the rest of the world

Fourth largest pension assets compared to GDP after Iceland, Netherlands, Switzerland Fifth largest in world in in $US terms after USA, UK, Japan and Netherlands

A still maturing system

A short history of compulsory superannuation

Started from a base of 40% of employees in 1980 covered voluntarily, mostly in DB Started small, at 3% of wages, not yet really big in terms of adequacy Almost all full time employees receive pension contributions

Future retirees?

Or this?

Or this?

Or this?

Or this for older retiree leisure?

Or this?

Or this for older retirees?

Extent of Defined Benefit

Over a third of assets in “hybrid” schemes with both DB and DC, but most is DC Only 4% of assets in pure DB schemes Population surveys indicate around 10% of employees in DB, with percentage falling

Defined Benefit assets and liabilities

Around $65 billion in DB pension fund assets Over $A80 billion in the Future Fund Liabilities to current and future pensioners of nearly $A300 billion

Investment risk

90% of fund members in DC schemes directly affected Also impact on employer sponsors of defined benefit schemes Most DC fund members have 70% exposure to equities

The global financial crisis

Average negative return of 12.8% in 2008-09 Average annual of -0.7% over five years to June 2012 Average annual of 7% over 20 years

Investment returns in 2012

10.5% return for balanced fund in calendar 2012 3.8% return for cash option 12% for high growth option

Investment yields

Average yields from bonds, deposits, rents and shares around 5% per year Most of the volatility in investment returns comes from variations in the price of various assets, particularly share prices

Current retirement incomes

In 2009 the average (mean) annual income was $A33,500 for males and $A26,940 for females The median amounts were $A20,800 for males and $A19,700 for females Around 80% relied on Age Pension [social security] for more than 50% of their income

Current and recent government initiatives

Phased increase in compulsory contributions to 12% New tax rebate for lower income earners Contribution caps New “MySuper” default product

Statistical challenges remaining

APRA quarterly data only covers larger funds Even APRA annual data are at a relatively aggregate level Australian Taxation Office data mostly annual with a lag More real time data needed

ABS statistical issues

Superannuation data collection victim of recent budget cuts Last comprehensive household survey on superannuation in 2007, was to be in 2013 but now not before 2019 Data from the bi-annual Household Income and Expenditure surveys but not published in detail

Data opportunities

More data will be available from expanded APRA collections Greater understanding of the GDP data will lead to greater use in policy discussions ABS might review recent decision to postpone survey?