Too pure to die, too poor to live

Our super system is ill-equipped to provide elderly Australians with the income and flexibility needed to manage longevity risk. Increasing life expectancy rates will make matters worse.

When Paul Keating embarked on the reforms that became known as the ‘super guarantee’ in 1992, blokes were still a reassuringly unhealthy bunch, dutifully drinking, eating and smoking themselves to early graves.

Even his former boss, Bob Hawke, was committed to enjoying life in a way that the antique-clock-polishing Keating rarely did. 

Fairfax’s Tony Wright recalls that in departing the Lodge at the end of 1991, Hawke told guests at his final party: “There's a f---ing load of French champagne in the cellar here. Make sure you drink the lot of it so that c--- Keating doesn't get a drop.”

Chuffing on cigars -- the ghastly crime recently committed by Treasurer Hockey and Finance Minister Mathias Cormann in a Parliament House courtyard -- was almost de rigeur back then.

So when Keating took advice on what sort of superannuation system was needed, he had no reason to doubt that blokes typically died a lot earlier than sheilas.

Digging back through the data, the average life expectancy of males born in those days was 75, while the less excessive lifestyles of females would see them reach 81.

By the time of the Rudd government’s 2010 Intergenerational Report (Rudd re-set the five-yearly publication schedule, as the first reports were produced in 2002 and 2007), men were getting healthier and catching up. Life expectancy had become 80.1 for males and 84.4 for females.

Whatever happend to Neil Young’s "it’s better to burn out, than to fade away"?

It gets worse. When Rupert Murdoch gave his Lowy Institute speech last October, he was exhorting Australians to live longer still. His suggestion was to wear a Jawbone bracelet, as he did at the time.

“This is a bracelet that keeps track of how I sleep, move and eat, transmitting that information to the cloud ... Soon we will have similar watches and apps that keep track of our heart rate, our blood sugar, our brain signals ... That will help us all live longer lives, yes. But it will also change the health industry and the health dynamic. Not to mention opening many new areas for research and profit.”

Argh! Bring back Logan’s Run, the 1976 film in which citizen gorge themselves on worldly pleasures before being terminated by the state at 30.

Where Murdoch sees research and profit, the politician sees trouble looming.

Not only are people living longer, but there is a growing smorgasbord of high-tech and high-priced treatments for many ailments. In an age of entitlement, that means more pressure on pollies to dip into the public purse and give nan and pop a new lease on life.

The other side of that coin is getting Australians to pay for it themselves. On their current settings, the new army of oldies will not be able to fund themselves to live, let alone fork out for a course of antioxidant-magnetic-resonance-stem-cell-and-wheat-grass-shiatsu or whatever the next big thing is.

As the newly released Murray inquiry interim report points out, Australia’s superannuation system is hopelessly ill-equipped to give oldies peace of mind that they won’t outlive the money needed to keep them on Metamucil and lamingtons (the one being a natural corollary of the other).

For one thing, the annuity-style products used overseas -- products that combine features of an investment and longevity insurance -- are far too small a part of the financial landscape.

The report notes: “The system lacks a sufficient range of financial products to help provide retirees with income and flexibility and to manage risks, particularly longevity risk ... Australia is unusual compared to its peers in not having a well-functioning market for products that manage longevity risk. Australia’s annuity market is much smaller than that of comparable countries when measured as a proportion of GDP.”

This is the same problem highlighted by Keating himself, when he recently called for 2 to 3 per cent of incomes to be squirrelled away in a Commonwealth-run longevity insurance scheme.

And as suggested previously (A new asset class growing under Hockey's nose, July 1), the lack of awareness of annuity-style products in Australia may be one reason investors are willing to pay such exorbitant prices for property in the past year or so. Whatever happens to the economy, stock markets, or even to the values of the property itself, the investor will have a life-time income stream that, though modest, protects them from both longevity and financial shocks.

And we are all going to need some longevity insurance, for the simple reason that forecasters keep failing to predict the breakthroughs in medical science that are helping prolong life.

Even between 2002 and 2005, the Intergenerational Report authors noted: “Over the past five years, life expectancies have risen more rapidly than expected in IGR1 [the 2002 report]; a trend that is projected to continue.”

Come again? So longevity rising by more than expected is to be expected?

No wonder we’re failing to plan for retirement.

It all makes a good cigar, a bottle of French champagne, and a copy of Logan’s Run look like a pretty good investment to me.