By Greg Medcraft
It is a fact of life that in Australia we have a growing number of retirees and an ageing population, and the trend will continue.
In fact, the 2015 Intergenerational report shows that by 2055, Australians aged 65 and over will more than double; one in every 1,000 people will be 100 years or older.
ASIC recognises this raises fundamental issues for the financial services sector, the community and the economy.
In particular, retirement planning can be complex, requiring consideration of the long term, and the need to think conceptually about uncertain and difficult issues, including health and mortality.
As people age, they may be faced with their own cognitive decline and be unable to decide things for themselves. Older Australians may also be more vulnerable to scams or elder abuse.
Some older people may be unfamiliar with the technology that delivers financial products and services.
ASIC and other regulators have a keen interest in the retirement space and ensuring older people get financial services in an appropriate way.
We see four important areas.
Education
ASIC educates seniors via our MoneySmart website which includes information such as a retirement planner calculator and financial advice toolkit.
We also realise there needs to be guidance to those caring for older people and making decisions on their behalf. We are developing information for carers which will on MoneySmart in a few months.
Financial advice
For seniors, retirement presents complex decisions with long-term effects. For instance, issues like tax, super and social security, estate planning and aged care.
When people approach the retirement transition phase, they may well be facing sums of money they have never dealt with before. Market shocks in the "retirement risk zone" - 5 to 10 years before retirement - can be particularly damaging.
Our surveillance work in financial advice looks at the appropriateness of advice to address retirees' long term objectives, as well as how financial advice deals with the suitability of a Self Managed Super Fund (SMSF) as people get older. That is, advice should not address just setting up an SMSF, but also about getting out of the fund if the person becomes incapacitated.
Decent retirement nest eggs can be tempting to those who don't have seniors' best interests at heart. Financial advice aside, we also know seniors can be the target of scams and frauds and financial abuse and we are looking hard at this area and taking action where needed.
New products
The Financial System Inquiry recognised retirement is complicated for people juggling many financial objectives and risks.
Recent Government rules open up the potential for new retirement products that address longevity risk – that is, the risk people live a long life and run out of money.
ASIC has been involved with other agencies to help introduce these products while also keeping a close eye on the design, disclosure, comparability and decision-making challenges they might present.
Real estate ownership and investment
The home can also be a source of income in retirement and an important financial resource when paying for aged care.
A fall in housing prices could have significant impacts on a person's retirement income, at the point where they are looking at downsizing and using equity for retirement income or for aged care. A price fall would also reduce severely the equity available in a leveraged SMSF.
Reverse mortgage and equity release products vary, but can include products offering income streams in return for the capital growth of a property. However, the final overall cost of a reverse mortgage is not known at the time someone enters into it, and debt can rise quickly as the interest compounds over the term of the loan.
In response to the challenges I have described, ASIC has set up an internal group to drive our work around the ageing and financial services. As part of this we will recognise the different and ever-changing cohorts in this group and address concerns that arise in the retirement process.
These range from initial decision making about commencing retirement income, the ability to manage retirement income products and structures with the onset of cognitive decline, and the need to interact with aged care.
We will make public statements about this work to confirm our commitment to help older Australians and address the concerns of our ageing population.
Greg Medcraft is chairman of the Australian Securities and Investments Commission
This article originally appeared in The Australian on 28 August 2017.