Christmas has come early for the bank’s shareholders with the decision to slightly increase the 2024 dividend – despite a single-digit decline in the net profit and cash earnings.
Beating the market benchmark is never easy, with 72 per cent of Australian actively managed global equity general funds trailing the S&P World Index in the six months to June 30, 2024. Domestic equity funds performed slightly better, albeit against a significantly lower bar set by the S&P/ASX 200 Index.
Risk of an ageing population overstated: Mercer
David Knox, a senior partner at Mercer and Senior Actuary for Australia, has downplayed the fiscal risk to Australia of an ageing population, arguing that the data used in the latest Intergenerational Report is misleading.
Addressing the Actuaries Institute’s recent fireside chat about superannuation and retirement, he says the old age dependency ratio – it’s expressed as the population over 65 divided by the population aged 15 to 64 – that is used globally to talk about ageing populations is “totally out of date”.
“Think about it. Not very many 15-year-olds are in the workforce. Most of them are in school, and then a sizeable proportion go on to tertiary education. In addition, five per cent of the workforce in Australia is now aged over 65 – and that numb er is expected to rise.
“So that ratio is obviously misleading. And, unfortunately, politicians tend to use it as holy writ, making the situation worse than it really is.”
Knox says that Mercer has used different data by gradually increasing the definition of ‘old’ from 65, 40 years ago to 70 in 40 years’ time – five years over an 80-year timeframe. “That’s not very dramatic,” he tells audience. “In fact, it’s incredibly gradual. Yet it presents a far more realistic picture of the old age dependency ratio.”
Another factor to consider is that Australia is much better placed to cope with an ageing population compared with most other developed countries – a point highlighted by the Intergenerational Report.
Although acknowledging that Australia’s population is set to age and will cause significant issues for our ability to raise revenue and to pay for services, the report adds that it’s often forgotten that “we are very much a nation of young people”.
So, while the old-age dependency ratio is set to rise to 38.3 per cent – well above the current level of 26.6 per cent – by 2063 and will represent a significant change, it is not one that will be at all unprecedented throughout the world.
Many nations in Europe, such as Germany and Italy, have higher dependency ratios now than we anticipate having in 40 years’ time. As the report says, “none of these nations with dependency ratios at the levels Australia expects to have in 40 years’ time are economic disaster zones.
“Sweden, which currently has close to the same dependency ratio as Australia is expected to have in 2063, has almost the same level of GDP per capita as does Australia. Sweden also consistently ranks higher than Australia on levels of well-being and happiness.”
As both Knox and the report highlight, Australia’s ageing population is not an intractable problem. But it will require a serious debate about how we support our population as it ages, and what level of taxation will be required to afford it. Sadly, it’s a debate we still struggle to have an intelligent conversation about.
Indeed, a bigger challenge of an ageing population could be the fact that many people believe they are unprepared for retirement, as the Actuaries Institute’s paper, Retirement Matters, explains. Quoting the Retirement Income Review, it says that the retirement income system is complex, so it is no wonder that Investment Trends’ research found that only 37 per cent of non-retirees felt prepared for retirement.
“It is as if we expect individuals to become experts in risk management – maybe even become their own defined benefit actuary – with the big challenge being effectively transitioning into retirement, including efficiently converting their retirement savings into retirement income.”
