Australian life just keeps getting longer

Extraordinary jump in longevity playing havoc with the superannuation system.

By InvestSMART · 9 Nov 2012

By InvestSMART ·
9 Nov 2012

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Extraordinary jump in longevity playing havoc with the superannuation system.

A DECADE ago an Australian man who had just turned 50 could expect to live another 29.9 years. Today the official figure is 32 years. Even the past year has made an enormous difference: only 12 months ago he could officially expect an extra 31.7 years rather than 32.

The extraordinary jump in longevity, detailed in new Bureau of Statistics life tables, is playing havoc with the superannuation system. Australians who get their super in a lump sum are increasingly likely to exhaust it before they die.

Michael Sherris, professor of actuarial studies at the University of New South Wales, says financial planners don't understand the risk. ''They'll sell people what they call superannuation accounts because they let people draw down what they need, but they typically last 15, maybe 20 years. While 20 years is what the tables say retirees have left, longevity is improving all the time.''

The life tables show a girl born today can expect to live 84.2 years, and a boy 79.7 years, but if they survive the first few relatively dangerous decades the figures are higher. Professor Sherris says generational changes and improvements in medicine mean a girl born today is quite likely to live to 100, with about half the girls born this year likely to live beyond that.

''When their super runs out, these people fall back on the pension. For some it's a sudden drop in income. But they won't buy lifetime annuities - so-called longevity insurance - in part because the annual income it gives them is small.''

Jeremy Cooper, who chaired the government's inquiry into superannuation in 2010, is now an executive at Challenger Limited, one of the few firms selling lifetime support. He says most Australians prefer the ''Holden Kingswood'' - a product that pays them what they want until it runs out.

''What they hell do you do when you turn 87?'' he said. ''You are still spritely and you think you've been frugal, but the money's just not there.''

Indigenous Australians are more than twice as likely to die in any age as non-indigenous people.

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Frequently Asked Questions about this Article…

How much has life expectancy in Australia increased recently for a 50-year-old man?

According to new Bureau of Statistics life tables cited in the article, a 50-year-old Australian man could expect to live another 29.9 years a decade ago but can now expect about 32 years — up from 31.7 years only 12 months earlier.

What do the ABS life tables say about newborn life expectancy in Australia?

The life tables show a girl born today can expect to live about 84.2 years and a boy about 79.7 years. The tables also note that if children survive the riskiest early decades, expected lifespans are higher, and generational improvements make very long lives increasingly likely.

How is rising longevity affecting the Australian superannuation system and retirement income?

The article explains rising longevity is straining superannuation: retirees who take lump-sum super or flexible drawdown accounts are increasingly likely to exhaust their savings before death and may then have to fall back on the pension, often causing a sudden drop in income.

Why do actuaries warn that superannuation drawdown accounts can be risky?

Professor Michael Sherris, an actuary, says financial planners often underestimate longevity risk: typical drawdown-style super accounts tend to last 15–20 years, while improving longevity means retirees may live much longer than those timeframes.

Why don’t most Australians buy lifetime annuities or longevity insurance?

The article notes most retirees avoid lifetime annuities because the guaranteed annual income they provide is often relatively small, and many prefer flexible drawdowns that pay what they want until the money runs out.

What did Jeremy Cooper and Challenger Limited say about retirees’ preferences for retirement income?

Jeremy Cooper, now an executive at Challenger Limited (one of the few firms selling lifetime support), says most Australians prefer a ‘Holden Kingswood’ approach — taking flexible payments they want until savings run out — rather than buying lifetime income products.

What happens to people’s income when their superannuation runs out in retirement?

When super runs out, many people fall back on the government pension, which for some leads to a sudden and significant drop in income compared with what they had while drawing down their super.

How does mortality among Indigenous Australians compare with non‑Indigenous people, and why does this matter for retirement planning?

The article states Indigenous Australians are more than twice as likely to die at any age compared with non‑Indigenous people. That higher mortality rate is an important consideration for retirement policy and individual retirement planning, as it affects expected time on income support and super outcomes.