Australians’ retirement savings are tipped to fall by tens of thousands of dollars due to the impact of climate change, according to new research by the Actuaries Institute.
Climate change poses several risks to the Australian economy, from direct damage to property and infrastructure, to challenges in shifting carbon-intensive industries towards greener, more eco-friendly alternatives.
These two challenges can result in lower investment returns and loss of income or employment respectively, with the end result being workers taking a hit to the hip pocket.
Employees on a median income can expect to end their working lives with $40,000 to $70,000 less in superannuation than they would otherwise expect as a result of climate change, the research found.
Those figures were derived from two test scenarios put together by Dr Ramona Meyricke and Rafal Chomik, from University of NSW’s Centre for Excellence in Population Ageing Research.
The first scenario examined the impact of transitional risks by looking at how much super a 20-year-old worker earning $75,000 would have at retirement (age 67) if they suffered four bouts of joblessness as a result of the shift towards a green economy.
The second scenario explored the consequences of falling investment returns, by taking the same 20-year-old worker of $75,000 a year but including a 1 per cent decline in returns each year.
These figures are based on the assumption that global temperatures rise by 2 degrees Celsius, and any higher than that would likely mean even bigger losses.
“This is going to affect younger investors more, who are suffering these losses going forward over the long term,” Dr Meyricke told The New Daily.
“In the short term, our recommendation is that all superannuation trustees should be considering this risk.”
The findings come soon after another analysis which found that the value of Australia’s property market could shrink by more than $500 billion over the next decade.
The research by the Climate Council showed that climate change could wipe $571 billion off Australian property values by 2030.
Further, it found one in every 19 property owners could be facing “effectively unaffordable” home insurance premiums as climate risk grows.
Insurance poses similar challenge
The Actuaries Institute research comes a day after the prudential regulator APRA flagged its concerns that climate change could put insurance out of reach for many households.
Insurance premiums in regions prone to natural disasters are becoming untenable for many residents, APRA executive director Geoff Summerhayes warned, and government needs to prepare at-risk communities rather than focus on the clean up to bring premiums down.
“Hundreds of millions of dollars each year are spent on disaster funding but about 97 per cent goes towards clean-up and recovery, with only three per cent directed to mitigation and prevention,” Mr Summerhayes said.
“All levels of government, working with insurers and other stakeholders, can help to protect vulnerable communities by investing in mitigation, such as flood levies and sea walls.”
Mr Summerhayes cited the example of Roma in southern Queensland where, after the 2012 floods, insurance premiums fell by 50 per cent to 90 per cent following the completion of flood mitigation infrastructure.
The Insurance Council of Australia applauded APRA’s stance on disaster mitigation and urged the federal government to adopt a Productivity Commission recommendation that it invest at least $200 million a year in mitigation and resilience projects.
The recommendation also called to the states and territories to match that funding.