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A new approach to retirement adequacy

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Pre-retirement incomes and post-retirement lifestyle expectations differ for every individual, so helping members reach their goals requires accurate and relevant data, writes UniSuper chief executive Kevin O’Sullivan.

Kevino O Sullivan

Retirement income adequacy remains a key issue facing the superannuation sector. A major concern for many Australians is whether they will have enough money to maintain their pre-retirement standard of living.

Superannuation funds have traditionally relied on the ASFA Retirement Standard to benchmark how members are tracking to income adequacy in retirement.

ASFA’s Retirement Standard suggests that for a 65-year-old to live a comfortable retirement lifestyle, a single would need income of $42,893 a year and a couple would need $58,922 a year, based on data from the 2016 March quarter.

While a dollar-based approach has some strength, it is likely to be a better measure for low-income earners.

To address this concern, UniSuper engaged global advisory firm Willis Towers Watson to examine the retirement preparedness of our members against a different benchmark, using individually relevant indicators such as salary, age, contribution patterns and current balance.

This Retirement Adequacy Index measures members’ projected retirement income as a percentage of their pre-retirement salary, better assessing how their standard of living in retirement might compare with that enjoyed during their working lives.

We believe a salary-based approach provides a clearer indication of how members are progressing towards their individual retirement goals, especially for middle- to higher-income earners.

For many people, aspiring to post-retirement income of about 70 per cent of their pre-retirement income can be a realistic goal that will enable them to enjoy a comfortable retirement.

The study’s findings highlighted the ongoing importance of focusing on retirement adequacy.

UniSuper members are predominantly academics and professionals with salaries that are higher than the community average, relatively high standard contribution rates (with a default employer contribution rate of 17 per cent for the majority of members) and above average balances.

A large proportion of our members are on track to achieve appropriate post-retirement outcomes. However, these projections also indicate about a third will likely rely heavily on the age pension in retirement.

We plan to use the model to benchmark how members’ outcomes shift over time and to enhance and better tailor our support to members through webcasts, education workshops, advice and online tools to encourage members to think more about their retirement positions.

UniSuper also recently launched 'Compare Me', an online comparator tool that provides members with an indication of how their super savings are tracking against peer members with a similar profile, based on age, gender and product.

Compare Me was launched in response to research by Investment Trends in 2015 which indicated that more than one third of members wanted to know the average balance of their peers.

By allowing individuals to compare their situation to other members, funds can give members an indication of how they are progressing and help them take steps to improve their situation, sooner rather than later.

Kevin O’Sullivan is the chief executive of UniSuper.

 

A new approach to retirement adequacy
Kevino O Sullivan
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