Pensions evolving into a trillion dollar transaction market
There is still around one trillion dollars in the Australian superannuation system, an amount that grows each year despite investment returns or losses thanks to the nine per cent super guarantee gravy train.
Deloitte says than within twelve years there will be one trillion dollars in the post retirement super space alone, the vast majority of that money in the tax free over 60 group. The baby boomers are retiring and they aren't cashing out.
"The only reason this [card access to super] hasn't taken off before now is that super funds are a bit antiquated and the banking system has a complex infrastructure and security system," said Wayne Walker, an actuarial partner at Deloitte.
"The post retirement market in Australia is still in its infancy; over the next twenty years it will move into maturity."
"The pension system became turbo charged by the 2006 changes," said Walker. "Suddenly it made sense to leave your money in super for as long as possible."
"We have had a lump sum culture in this country for a long time, but that is coming to an end."
"In the future I might have an allocated pension account with sixty per cent in shares and growth, some in some other option, and with ten per cent or so available in a cash account for me to access at will."
Funds are even grappling with new products that protect against longevity risk inherent in the current allocated pension model.
"The Australian super system has been world class at accumulating balances but has not developed its post-retirement products to the same extent," said Ian Fryer from superannuation research agency Chant West.
"That is changing now.
"A lot of funds didn't even have their own pensions a few years ago. Now they all have them and they are actively promoting them.
"In the future, funds are looking at products like variable annuities that address at least some of the longevity risk of allocated pensions."
Funds are starting to look overseas and see what pensions in the United States and other countries look like, said Fryer.
That's because suddenly this post-retirement super space is a tax-advantaged high-value competitive environment. The lump sum no longer rules in super.
"Where once upon a time people retired and collected their lump sum super, they are now keeping their money in super and it is becoming a life-time relationship with us, their super fund," said Rob Brooks, chief executive of Vision Super.
Deloitte's Walker said the industry funds look to be grabbing the early lead in the carve up of baby boomer retirement savings and investment assets. These funds that barely a year or two ago had no pension product to speak of at all are suddenly competing with the retail master trusts for the high net worth investor.
"If industry funds can develop effective strategies to counter the transfer of their high account balance members, especially as they approach retirement, they may overtake the retail-personal business segment," said Walker.