Are salary-based retirement income calculators better?
Will superannuation fund members be better informed about their future retirement income adequacy if it is spelled out for them in terms of a salary-based target?
Universities-based super fund, UniSuper believes that salary-based targets are a more useful indicator for those approaching retirement than the more widely-used Association of Superannuation Funds of Australia (ASFA) Retirement Standard.
The fund announced this week that it was moving to the salary-based measure via its new Retirement Adequacy Index on the basis that it was more useful than a fixed dollar target.
According to UniSuper chief executive, Kevin O'Sullivan, the salary-based approach better determines individually relevant indicators of members' progress in attaining a level of retirement savings needed to maintain their pre-retirement standard of living.
He said that for a fund such as UniSuper with a base of largely professional members who tend to have higher salaries, the ASFA Retirement Standard could be a misleading benchmark.
"While a dollar-based approach can assist members to understand retirement targets, it is likely to be a better measure for lower income earners," O'Sullivan said.
"Salary-based targets that measure an individual's retirement income as a percentage of their pre-retirement salary are likely to be a better measure for middle to higher income earners."
He said this was because salary-based targets could help project how a member's standard of living in retirement might be aligned with what they enjoyed during their working lives.
"For many people, aspiring to post-retirement income of about 70 per cent of their pre-retirement income can be a realistic goal to enable them to enjoy a comfortable retirement," O'Sullivan said.
"Pre-retirement incomes and post-retirement lifestyle expectations are different for every member, so a challenge for superannuation funds is developing data that is accurate and relevant for individual members. The Retirement Adequacy Index provides a dynamic approach to assess how members are tracking to their individual retirement goals."
UniSuper engaged global advisory firm, Willis Towers Watson, to examine the retirement preparedness of its members against this new benchmark using each individual member's salary, age, contribution patterns and current balance.
The findings highlighted the ongoing importance for members in the higher education and research sector to focus on retirement adequacy. With relatively high standard contribution rates and above average balances, a large proportion of UniSuper members were currently projected to achieve appropriate post-retirement incomes. But projections also indicated that about a third of UniSuper members would likely rely heavily on the Age Pension in retirement.
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