Australia has only scratched the surface on the ramifications of dementia on superannuation’s choice-based structure, a new report argues.
According to new findings from the Arc Centre of Excellence in Population Ageing Research (CEPAR) and Neuroscience Research Australia (NeuRA), the direct cost of dementia is set to hit $12 billion by 2025. That’s compared with $9 billion in 2016, the Cognitive ageing and decline: Insights from recent research report found.
However, CEPAR and NeuRA also found the rising prevalence of dementia in Australia will have consequences for financial decision-making.
“Our retirement income system is very complex and requires a lot of active decisions. We are only beginning to think about how population ageing will affect the decision-making ability of older cohorts and what insights psychology and behavioural finance can bring,” said CEPAR director Professor John Piggott.
He called for greater investment into ageing research to help identify dementia risk factors, build strategies to assist financial decision-making in old age and create more workplace support for older workers.
The report’s co-author and CEPAR chief investigator at UNSW Professor Kaarin Anstey added that about 8 per cent of Australians in their 60s experience mild cognitive impairment, although a large portion of this cohort never develop dementia.
Nevertheless, even a mild cognitive impairment can have significant consequences for decision-making.
It doesn’t help that financial decisions are difficult for Australians of all ages, Professor Hazel Bateman added.
The CEPAR chief investigator at UNSW Business School explained, “Australians nearing retirement score higher in tests of financial literacy than younger people or those in other countries, but about half of them answer basic questions about inflation, interest rates and diversification incorrectly.
“As the population ages and more people face cognitive limitations, we need to consider whether the choice architecture of superannuation can cope.”
According to CEPAR and NeuRA analysis of behavioural finance, defaults can be useful but require careful design.
Additionally, improved regulation of information provision safeguards against inappropriate financial advice to vulnerable consumers and financial literacy programs that cater to older Australians’ learning styles are required.
“The need to allow individuals their financial freedom while mitigating confusion and poor decision-making among this age group is something that has yet to be reconciled in the literature and in policy,” Professor Bateman concluded.
By Lucy Dean
11 April 2018