Australia has a world-class retirement savings system, but longevity risk remains a huge threat to Australians’ quality of life and healthcare in retirement.
New research by financial services consultancy firm Mercer shows one in four Australian retirees will outlive their savings by 11 years.
It also found that as many as 10% of the population who live even longer may be forced to rely solely on the age pension for 15 years or more, with 54% of Australians expecting to have less money than they need for retirement – falling short by as much as $500,000.
The Financial System Inquiry interim report calls out the lack of effective longevity risk management as a major weakness of Australia’s retirement income system, with Mercer’s managing director David Anderson saying, “Australia is facing a very real economic and social dilemma due to a lack of protection against longevity risk up until now.”
Anderson says longevity risk is a huge threat to Australians’ quality of life and healthcare in retirement, which he says has ultimately put pressure on the public purse and our own personal finances.
Senior partner and senior actuary at Mercer, Dr David Knox, said:
“It’s time to leverage the scale of the superannuation industry to provide longevity risk pooling; the sharing of risk will lead to improved outcomes for everyone.
“Longevity risk is a problem in Australia that demands urgent action… The proverbial certainties in life are of course death and taxes, the uncertainties are when and how much.”
The report follows the introduction of Mercer’s LifetimePlus plan, a pooled mortality investment fund, which Knox says will “help protect against the uncertainties relating to how long you will live”.
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