The impact of climate change on mortality and retirement incomes in Australia

In Australia, the main risk to human life from climate change arises from heatwaves. As the frequency and duration of heatwaves increase, so will the number of heat-related deaths — and older people are the most vulnerable.  

Other wide-ranging implications of climate change could include lower investment returns and superannuation contributions, with consequent lower retirement incomes. 

HEATWAVES WILL TRIPLE

The Actuaries Institute Dialogue paper, The Impact of Climate Change on Mortality and Retirement Incomes in Australia, outlines these heat-related risks and explains why they should be considered by life insurers and annuity providers, individuals and government.

The paper states that heatwaves, which have killed more Australians than any other natural hazard, will at least triple by 2060-2080.

More frequent, longer and hotter days will drive a significant increase in mortality, with Australia’s ageing population amplifying the number of people who will die as a result of climate change.

SUPER AND INVESTMENT

The potential impact of climate change on people’s lives could also extend to lower superannuation contributions and investment returns.

Increased periods of unemployment or under employment driven by economies around the world transitioning to net zero emissions and a higher frequency of natural disasters, could lead to lower superannuation contributions.

In addition, climate change has negative long-term return implications for investors who are not diversified at a total portfolio level to climate change, which could lead to lower superannuation balances.

MODELLING THE FIGURES

Illustrative scenario modelling suggests that an individual earning around $75,000 pa could retire with 11 per cent to 18 per cent less, or a superannuation balance of $40,000 to $70,000 less, because of lower contributions and/or lower investment returns.

The impact would be greater for those who experience both reduced contributions and investment returns.

The predictions have major implications for individuals, superannuation funds and pension providers, including the federal government.

MATERIAL COST DRIVERS

The paper says two material cost drivers for life insurance and pensions (annuities) are mortality and investment returns, and climate change is expected to impact on both.

Key points

• Heatwaves, which have killed more Australians than any other natural disaster, are expected to become more frequent and last longer.
• Deaths from heatwaves could rise by 12 per cent among over 65-year-olds by 2060-2080 in some regions.
• Climate change may have negative long-term return implications for investors.
• For individuals, it may mean lower super balances; illustrative modelling suggests reductions of 11-18 per cent for the median earner.

Read the Whitepaper