By Scott Murdoch
(Reuters) -Australia’s financial regulators have warned the country’s A$4.5 trillion ($2.9 trillion) pension industry to speed up preparations for an estimated 2.5 million people due to retire in the next decade.
There is a widening gap in preparedness among the nation’s pension funds, known in Australia as superannuation funds, and some have not developed sufficent retirement products or income strategies, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) said in a report published on Wednesday.
ASIC had previously warned of an approaching “silver tsunami”, which it says has now arrived.
“There is a consistent wave (of retirees) now – this is here. We’re at the point where soon it’s going to be the second biggest pension system in the world which moves into being a system of retirement and drawdown,” ASIC commissioner Simone Constant told Reuters.
“Our message to the super funds is you have to be ready now, you have to be doing the work now.”
The warning highlights a looming challenge for the industry as it shifts from wealth accumulation to income delivery for retirees. Funds face mounting pressure to design products that manage longevity and market risk, and failure to adapt could expose retirees to income shortfalls and raise questions about the system’s ability to support the ageing population.
APRA, which regulates the funds, estimates there are currently 1.5 million pension holders already in the retirement phase, holding about A$575 billion in assets.
The A$4.5 trillion value of the industry at the end of the September quarter is a 10% increase from a year earlier, new figures from APRA showed.
There were A$215.6 billion of contributions made to super accounts in the year to September, against A$136.2 billion in payments made.
“The risk is that members are not well served for the purpose for which the system was set up,” APRA Deputy Chair Margaret Cole told Reuters.
“It was not just set up to collect a lot of money, it was set up to fulfil the promise – which has now been codified – of a dignified retirement.”
($1 = 1.5406 Australian dollars)
(Reporting by Scott Murdoch and Sherin Sunny; Editing by Subhranshu Sahu and Kevin Buckland)
