Why the industry's “comfortable retirement” measures are wrong

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By Jeff Gebler, Wade Matterson | 01 March 2017

The superannuation industry has placed an extraordinary emphasis on helping members achieve a “comfortable” retirement given it has so little information about what it actually means.

What we do know is largely composed of averages and assumptions which are ranked against the ASFA Retirement Standard’s portrait of the average Australian.

The standard represented an important step forward when it was launched in 2004, but expectations have since risen dramatically along with the industry’s assets, which now surpass Australia’s annual gross domestic product and the size of the share market.

The personalised nature of each superannuation member’s retirement journey means a one-size-fits-all approach simply cannot deliver the necessary information, products and risk management strategies required to achieve everyone’s desired outcomes.

Or, as the Productivity Commission’s recent report into the industry’s competitiveness and efficiency put it, “Indicators which focus on the ‘median’ or the ‘average’ user will not necessarily reflect what is optimal for all or even most members”.

Funds need to take a more nuanced approach or a lack of member engagement will be the end result.

Starting points: Different funds, different members

An average couple requires about $640,000 at retirement (or $545,000 for a single person) to support a comfortable retirement, according to the ASFA Retirement Standard.

The average Australian household at retirement has slightly more than half this level of super—around $355,000 in 2013-14, according to ASFA. However, this hides a wide disparity in actual retirement experiences. The median household super balance was just $110,000.

At the least, this suggests that the ASFA Retirement Standard is of little practical relevance to a significant number of older Australians and those super funds attempting to improve their retirement experience.

A basic analysis of super fund data, segmented by age, underlines the problem faced by funds.

For example, APRA data reveals that Hostplus members aged 45-64 years had an average balance of approximately $40,000 (the bulk of its approximate 1 million are much younger) at June 30, 2015. No amount of investment outperformance is going to lift these members into the comfortable category defined by the ASFA Retirement Standard.

APRA data also reveals that a number of funds had relatively well-off members (although the data can be partially skewed with defined benefit categories) aged 45-64 years such as equip ($247,000), Commonwealth Bank Group Super ($215,000) and Energy Super ($200,000). Many of their members will have higher expectations about retirement than the standard assumes.

These differences between funds require different strategies to support a comfortable retirement, which should be defined by members rather than be dictated to them.

Assuming less and learning more

The only way to deliver products and services which will deliver better retirement outcomes is to learn more about members.

This is no easy task given there are more than 13 million Australians with (often multiple) super accounts and each has their own individual preferences and circumstances. But it is a crucial first step.

Too many funds assume super is the central hub of retirement–as expressed through the ASFA Retirement Standard–when they have little or no information about members’ wealth outside of super or their personal expectations.

Too many members who can’t meet this standard then receive a devastating message: they’ve paid for a product for decades over a working lifetime only to be told they haven’t earned a comfortable retirement (as defined by the fund rather than the member).

This is a cue for disengagement. Funds with a large proportion of members who can’t meet the current standard should instead take this as a prompt to learn more about them.

It requires better communication with members about their actual needs and better segmentation based on a far wider range of real-world data.

This combination can produce far more accurate estimates of what a comfortable retirement means for individuals and then suggest a pathway to support it.

For example, an analysis that includes just one new real-world data set (the ABS Household Expenditure Survey) can radically reshape the type of fixed income goals expressed in the current retirement standards. This is illustrated below where the income goal is defined at a member level incorporating a more realistic expectation of spending requirements using ABS HES data.

Source: Milliman analysis, ABS Household Expenditure Survey, ASFA Retirement Standards.

The opportunity to create better benchmarks is now there for funds thanks to more open data and the rise of low-cost cloud computing that has enabled analysis on a deeper level than ever before.

The super industry exists because Australians are forced to support its products for decades. Finding out what they really need for a comfortable retirement, and helping them achieve it, is the least they deserve in return.


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