Actuarial firm Rice Warner has predicted superannuation industry assets will increase from their current level of $2.7 trillion to $4.8 trillion, expressed in net present value terms, over the next 15 years.
The forecast represents a 4 per cent compound annual growth rate, resulting in a total future value of $7 trillion that will be invested in superannuation by 2034.
Referring specifically to the demographic make-up of superannuant money in a decade and a half’s time, Rice Warner anticipates retirees will account for less than 30 per cent of the predicted $4.8 trillion. Currently 31.5 per cent of superannuation assets belong to retirees.
The actuarial firm links some of this phenomenon directly to the SMSF sector.
“The key reason is the increase in pension payments as the baby boomers age and consume their benefits. There will also be a run-off of large SMSF funds as the current older retirees age and withdraw from the segment,” it said.
Looking back over the past 15 years, and the predictions made for that period of time, Rice Warner conceded it did not correctly anticipate the magnitude with which the SMSF sector would grow.
“We expected the SMSF segment to grow to about $400 billion today, but huge tax advantages over the last decade meant much higher growth to $750 billion,” it said.
With regard to the wider superannuation landscape, Rice Warner forecast a major shake-up to the structure of the retail market and a change in the liquidity restrictions placed on large funds.
“The retail segment will be transformed as legacy products are converted to MySuper, giving proper scale. Bravely, we assume the sector will still have 25 per cent of assets in 15 years – but the owners of these assets will be different, with newcomers like Vanguard gaining market share in time,” it said.
“[Also] superannuation funds will be required to hold more capital. Superannuation will soon dominate the whole economy and will exceed the size of the banking industry, but without the same capital constraints.
“Large funds are already innovative in moving into ownership of other (related-party) financial services businesses, usually via private equity or venture capital. As these risks are borne by members, little capital is required at present.
“However, the process is not transparent, and the structure is cumbersome. Hence, it is likely that funds will need to hold more reserves as capital to back those activities.”