Serious intellectual firepower is being brought to bear on the problem of Australia's ageing population and how they are going to be able to afford a comfortable retirement.
The CSIRO, an organisation well known for scientific research, has partnered with four universities to begin a $9 million research program into the nation's retirement savings system. Researchers from the CSIRO, Monash and Griffith universities, the University of Western Australia and the University of Warwick in Britain will investigate two broad themes: superannuation and the economy, and Australians over 60.
The Superannuation Research Cluster, as it is known, has already begun work, with the first outcomes expected by the end of this year. It is the first time the CSIRO has been involved in research in superannuation, which, at $1.6 trillion, is worth more than Australia's annual gross domestic product. The giant pool of super savings is having an impact on the economy.
The Cluster brings together researchers with expertise in disciplines including financial mathematics, social science, risk analysis, accounting, economic modelling, finance, health economics and behavioural economics. The research program was drawn together by Monash University's Professor Deborah Ralston, who is also executive director of the Australian Centre for Financial Studies. She says not much research has been done on the retirement phase, with most work concentrated on the accumulation phase.
"We are particularly interested in what I call that transition period from about age 55 to 65 and how you allocate assets over that time," Ralston says. "I think as people go into retirement, they have different needs."
First, they need an ongoing income to meet the costs of living. Then, they need to take care of longevity risk; that is, the risk of outliving their retirement savings, Ralston says. And they need to be able to access capital from time to time; for example, to buy a new car.
The research will look at ways these objectives can be met, including what sort of gfinancial products and services could be made available to retirees. Among the many research projects is a study into optimal asset allocation that super funds should have. There is a debate going on in superannuation circles as to what that may be.
The high exposure to shares of the typical "balanced" option exposes those nearing retirement to a lot of investment risk. During the global financial crisis, older fund members near retirement were left with less super than they were expecting after share prices collapsed. Some had to stay in the workforce for longer than they had planned, to rebuild their retirement savings.
Another team will look at fund members' behaviours in switching between superannuation investment options. During the worst of the GFC, some people switched from their fund's balanced investment option to their fund's cash option. They ended up locking in the losses and have missed out on the subsequent recovery on sharemarkets. Another team will study the financial aspects of later-life medical and aged-care expenses.