2021 was another year where our lives were dominated by COVID-19. Though in Australia, it was a relatively positive experience when compared to our international peers, in terms of low numbers of lives lost and our health systems coping with added pressures, in addition to our rapid vaccination rollout and high inoculation rates. While we must remain vigilant and act quickly on future potential deadly variants of the virus, the pace of vaccine and medication development gives us greater hope for more freedom of movement and more time to see the ones we love heading into the new year. The loss of social activities has burdened many of us and weakened our ability to juggle an increasingly complex work/life balance – as a result, we are all looking forward to the next year with hope and aspiration.
And yet, 2021 proved to be another generally positive year for financial services.
Equity investment markets domestically and internationally powered ahead, reaching new highs. Low-interest rates drove global investor demand for infrastructure assets, while technology use and innovation supported growth assets. Great acceptance of climate change contributed to greater interest in the enormous investment opportunities in electricity production from renewables as well as in the development of additional infrastructure required to phase out fossil fuel use.
This will only accelerate into 2022 and beyond. Additionally, we are likely to see a lift in interest rates globally as markets shift towards normality, having started late this year.
Pressured by APRA, life insurers addressed the lack of sustainability in disability income products with changes to policy offerings and premiums to stem the red ink. Mental health deterioration and awareness among members, policyholders and their advisors continued to influence claims and has led to an increasingly complex arena for insurance as stigma surrounding mental health challenges continues to erode. The relentless approach of implementation of the new and complicated standard for accounting for insurance contracts – AASB 17 – continued. As life insurers, friendly societies considered AASB 17 implications and the immediate challenge of continuing low interest rates on the sustainability of long-held capital guaranteed products for members and the societies.
2022 will continue these challenges including the quest for better data for pricing and more modern, flexible administration system components to manage the business, reduce costs and operational risk.
Superannuation member funds under management reached $3.4 trillion in September, reflecting good progress for members on the path to dignity in retirement. Treasury’s determination of a principle-based approach to implementing the Retirement Income Covenant next July came with a flurry of new retirement income strategies and products, which helps to rightly shift the industry’s focus to the reality around its core purpose – improving actual retirement income for members as they retire. 2021 saw the results of APRA’s push for super fund laggards to improve member outcomes with thirteen funds named and shamed for failing to meet the performance tests, and much increased merger activity, with mega-funds emerging with scale, therefore resulting in a stronger, more concentrated market.
2022 will see more mergers, better retirement income strategies to meet members needs for performance, flexibility and advice while addressing fears of outliving retirement savings.
In all areas, competition will continue to increase driven by a mix of regulatory focus, the increased use of fintech, new and improved players such as Vanguard’s planned entry to Super direct to individuals and increasing younger financial consumers’ awareness.
Highlights of 2021 for McGing included the development of partnering relationships where we bring our actuarial and local expertise in life insurance, superannuation, and investments to support the capabilities of larger organisations. One particularly satisfying engagement, shared elsewhere in this newsletter, was our assistance to lawyers and the Supreme Court in Victoria in determining the basis for a fair and reasonable return to funders in a class action in the well-publicised Banksia case.
Thank you to our valued clients for engaging us to help you deal with the formidable challenges of 2021. The team here at McGing will be there again for you in 2022.
With too much of the last year spent in COVID-19 lockdowns in Victoria and NSW and border restrictions everywhere, we wish everyone the very best for a well-deserved break and catch-up with loved ones over the festive season and summer.
Sean is Managing Director of McGing Advisory & Actuarial and is currently Deputy Chair of the ASFA Victorian Executive. These views are his own personal views.
Sean and the team at McGing Advisory & Actuarial provide a wide range of consulting services across superannuation, wealth management, life insurance, actuarial, risk management, investments, and governance.