Recent challenges and 2023 outlook

As we progress into 2023, we recall the key developments from 2022, and we anticipate what challenges 2023 presents to our industry.

Global political events

One of the most significant events of recent years has been the war in Ukraine. This conflict has had major implications for the global economy, as it has led to a significant increase in geopolitical risk and uncertainty which has fed through to financial markets. Initially global energy prices increased, as did food prices, as supply chains already under pressure from COVID 19, got hit hard, accelerating inflation.

Local political events

The elections of Federal and Victorian Labor governments last year have enabled the country to start serious policy making on climate change issues and the related frameworks to support related urgent and long term investments. Core support for our superannuation system has returned. But defining its purpose and recognising its tax costs and elements of inequity have shown that the political super wars are ever present, and risk reducing confidence in the system and limiting the ability to improve it. All this in an environment where there will also be significant pressure on the new Government to pay down the debts accrued during the pandemic while juggling higher interest rates, high inflation and negative real wages growth.

Investment markets

Interest rates continued to climb. There were unprecedented asset valuation declines across almost all sectors simultaneously. However, long term investment future return expectations have increased markedly. Bonds are back in favour as core part of a diversified portfolio as there is a reasonable forward looking yield.

Superannuation

The wider quiet acceptance of the legislated rise in compulsory superannuation contributions to 12% cements the growing economic power of the industry to influence and participate in helping solve Australia’s challenges such as transitioning via electrification to a post carbon world, while growing members funds to meet the objective of a dignified, sustainable retirement for members.

Life insurance

The new accounting standard impacting life insurers, AASB17 / IFRS17, is now live. The active preparation has been a big drain on resources.

The increase in interest rates have helped take the pressure of guaranteed products. The cost of the guarantee in a higher interest rate environment is significantly reduced. Furthermore, there are higher investment returns forecasted to assist with future contributions to profit.

Financial advice

To end on an optimistic note, the release of Treasury’s Quality of Advice Review by Michelle Levy, offers the Government an opportunity to release what we hope will be a much better behaved advice sector to provide good advice to the millions of Australians who need it but are not getting it due to impractical, ineffective regulation which has cut accessibility to the core with resultant poorer financial outcomes for those missing out. Lowering the cost of providing good advice is critical to sustaining vibrant super, wealth management and life insurance industries with better consumer outcomes.

Sean and Neekhil