The Australian Government has published the latest edition of the Intergenerational Report (IGR), which provides a big picture view of the economy and fiscal position over the next 40 years.
The IGR identifies population ageing as one of the “powerful forces” shaping our economy over the coming decades, along with the expanded use of digital and data technology, climate change and the net zero transformation, rising demand for care and support services, and increased geopolitical risk and fragmentation.
Australians will live longer
It will come as no surprise that the population will continue to age over the next 40 years, driven by longer lifespans and lower fertility rates. Life expectancy at birth is projected to continue to increase, from 81.3 years for men and 85.2 years for women in 2022–23 to 87.0 years for men and 89.5 years for women by 2062–63. The number of people aged 65 and over will more than double, and those aged 85 and over will more than triple (Chart 1).
Chart 1: Australian Population Age structures, 1982–83, 2022–23 & 2062–63
Population ageing will be a significant challenge for the retirement income system and the superannuation industry, as well as an ongoing economic and fiscal challenge to the country as a whole. There will be fewer working-age Australians relative to the number of older Australians and a growing demand for quality care and support services.
A maturing superannuation system
As the population ages and the superannuation system matures, we will see the importance of superannuation as a source of retirement income increase over the coming decades. By 2062-63, the IGR projects the total amount in superannuation to be nearly 220 per cent of GDP, up from 116 per cent in 2022-23 (Chart 2).
Chart 2: Total superannuation balances as a percentage of GDP
The proportion of accounts in the retirement phase will more than double from 8 per cent in 2022–23 to 19 per cent in 2062–63. As a comparison, the proportion of the population over 65 will increase by only increase from 17 per cent to 23 per cent.
The IGR expects the increasing proportion of members in the retirement phase to impact patterns of how superannuation is drawn down in retirement over time. The IGR projects drawdowns from superannuation to increase from around 2.4 per cent of GDP in 2022–23 to 5.6 per cent in 2062–63. This increase will seriously impact the cashflows of many superannuation funds.
Superannuation funds must do more
The IGR echoes the recent APRA/ASIC statements that trustees need better strategies to assist their members in maximising retirement income, managing longevity risk and providing access to capital under the Retirement Income Covenant.
The proposed objective of superannuation is “to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”. The IGR projections illustrate the challenges ahead for the Government and trustees to develop products and services to help the superannuation industry achieve this objective.