The aim of retirement incomes policy in Australia for two decades has been to shift the burden of risk to individuals before the next big bear market hit. It worked quite nicely.

Defined benefit funds, through which an employer guarantees an employee a certain pension in retirement, were mostly shut down in the 1990s and workers were moved to accumulation funds, where you get what the market, and the fund managers, give you.

For the past five years the market has given nothing. After the 20% correction between April 11 and August 8, the ASX 200 accumulation index (capital return plus dividends) has now produced a zero five-year return.

The first 15 years since the superannuation guarantee legislation was first introduced in 1992 went extremely well. The compound annual rate of return provided by the share market — like manna from heaven — was 15.5%.

And Australia was, and still is, overweight equities. That is, the proportion of our retirement savings invested in shares is about the highest in the world. The OECD average is for about half to be invested in fixed interest; in Australia that’s 10%-20%.

But it meant that by 2007, after 15 years of the SG levy, this superannuation caper was a beautiful thing.

The power of compound interest plus mandatory contributions starting at 3% and rising to 9% would have seen retirement accounts increase as much as tenfold during those first 15 years. Even the most hopeless funds would have produced a five-bagger, as they say.

Of course, not all that return dribbled into the members’ accounts: the superannuation industry, consisting of advisers, platforms, fund managers and the super funds, were furiously skimming the accounts and getting gloriously rich.

Still, anyone retiring in 2007 was a big winner and didn’t begrudge the skimmers their little portion. Everyone was a winner!

But now life has changed completely. The five-year total return from the share market is zero; the 20-year total return is now below 10%; the 10-year return is just 6.6%. The fees skimmed off by the industry — which of course continue even though the balances have gone backwards — now represent a much larger percentage of the long-term return.

Suddenly accumulation super lacks the vital ingredient of accumulation. And there is a clear risk that the bear market will continue for some time yet, with Europe and the United States mired in debt.

The effect of this on peoples’ attitudes to super will undoubtedly be profound.

First, it’s likely that the growth of self-managed super will accelerate as savers become disillusioned with the returns being generated by the industry.

Second, stand by for the return of defined benefit super. There is still quite of it about, by the way: in April, Watson Wyatt found there were 54 defined benefit funds administered by 54 listed companies — a hangover from the 1980s. They were sitting on an unfunded black hole of $25 billion, which had grown from $2 billion in June 2008 — a shocking blow-out.

The federal government’s unfunded liability for defined benefit super is $140 billion, which is what the Future Fund was set up to manage.

What we’ve learnt these past few years is that there are no easy answers for funding retirement.

A big part of the reason Greece is completely insolvent and other European countries are in trouble is that their pension arrangements are too generous — massive unfunded pension liabilities are crippling them.

Australia no longer has that problem because market risk was transferred to individuals and away from governments and companies during the 80s and 90s.

We now have the other problem: retirement savings are going to fall short because the share market is doing its usual thing of following good times with bad times, and the consequences of this for HR policy are profound and unpredictable.

*This first appeared on Business Spectator.