Super system flaws produce retirement lottery, report says

Australians' post-retirement standard of living is akin to a lottery because the country's superannuation system is fundamentally flawed, a senior academic at the School of Risk and Actuarial Studies at the Australian School of Business, University of NSW has claimed.

Associate Professor John Evans said most studies on retirement adequacy assumed single rates for investment returns, inflation and wage growth which ignored the random nature of economic variables — including market crashes.

The study Evans co-authored, The Australian Retirement Lottery: A System Failure, assessed the risk associated with retirement income adequacy due to market uncertainty and looked at the way capital market crashes can produce different outcomes for various cohorts of retirees.

The study found that four market shocks could increase a male's probability of falling below replacement rates to 55 per cent probability from 29 per cent when no market shocks were experienced. Replacement rates varied wildly, with some Australians enjoying replacement rates of 290 per cent while others could expect 42 per cent.

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"The results arising from capital market shocks, which are a lottery in so far as contributors are concerned, and are uncontrollable, indicate that the Australian retirement system will not deliver anywhere near similar retirement standards of living," the study said.

Evans said the study's natural conclusion was for a national superannuation fund, but called on industry to revert to a bank account system. He said politicians were "barking up the wrong tree" in trying to fix the current system because it was fundamentally flawed.

"We need to revert to the fundamental principle behind the initial structures of the industry funds, namely, a ‘bank account' system that provides reasonably stable interest rates, backed by similar investments to those now adopted by superannuation funds but where the capital market fluctuations are reduced by holding reserves from the good times to subsidise the bad times," he said.

"This would flatten out the significant problem of the current lottery system."