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

Climate change Retirement income Extreme weather events Health insurance Older people Life insurance Australia

Australians’ health and finances are at risk in coming decades, as a result of climate change. The wide-ranging implications of climate change include higher mortality, lower superannuation balances and lower retirement incomes.

In Australia, the main risk to human life from climate change arises from heatwaves. Historically heatwaves have killed more Australians than any other natural hazard. The January 2009 heatwave in Victoria alone is estimated to have caused 374 deaths.

The frequency and duration of heatwaves will increase significantly over the 21st century, with greater increases in the north than south of Australia. Increases in heatwaves will drive a significant increase in the number of heat-related deaths in Australia. Many factors will affect the number of deaths from heatwaves in the future including public awareness, how we work and other factors.

Older people are most vulnerable to heatwaves so, all else being equal, ageing of the population will amplify the absolute mortality impacts of climate change.

Life and health insurers are increasingly focussed on customer wellbeing and on helping their customers reduce risks to their health. This could be extended to increasing customer awareness of how to avoid the risks posed by extreme heat.

From a financial perspective:

  • For life insurers and annuity providers, the impact of climate change on mortality needs to be considered alongside the impact it may have on investment returns. Climate change could have negative long-term return implications for investors who are not diversified at a total portfolio level to climate change.
  • For individuals, exposure to the negative long-term return implications of climate change could be expected to lower the accumulated superannuation balance (at age 67) and retirement income (including Age Pension) of a worker on median earnings by 18% and 5% respectively. Reduced capacity to contribute to superannuation due to income shocks driven by the physical or transition risks (linked with climate change) could further erode balances and retirement income.
  • For government, while higher levels of mortality translate into lower fiscal expenditures on the Age Pension, lower investment returns on superannuation savings could translate into higher fiscal expenditures on the Age Pension. The present value of extra Age Pension expenditure on the median earner, if investment returns were 1% p.a. lower over that person’s life, is estimated to be around $30,000, all else being equal.
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