Mercer develops retirement readiness index

mercer ASFA association of superannuation funds super funds superannuation funds smsf essentials

16 April 2014
| By Staff |
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Superannuation funds can now measure how many of their members are on track to retire comfortably and more importantly how many aren't, thanks to a new 'Mercer Retirement Readiness Index' (RRI) developed in Australia.   

The new index allows super funds to track members, simulate their future income replacement likelihood and intervene, before it's too late, to steer people on to the right path to a comfortable retirement.  

According to Mercer, the Index compares the projected retirement income with the 'Comfortable Retirement Standard' produced by the Association of Superannuation Funds of Australia (ASFA), currently $57,665 per annum for a retired Australian couple.   

The estimated income accounts for other super accounts, non-super assets, and any age pension entitlement based on assumed assets and income at retirement.

The estimated super balance at retirement is converted into an account-based pension with an initial drawdown of 6 per cent.   

Commenting on the newly developed Index, Dr David Knox, senior partner at Mercer, said that based on these assumptions, members were then allocated into green, amber or red zones and a fund was given a score out of one hundred. 

"Our traffic light system of tracking retirement readiness is simple and accessible but it can identify very serious risks for super funds and individuals and act as a meaningful wake-up call to get back on track ASAP," he said.

"It provides a very clear measure for boards and management of super funds about the impact of both external events and internal decisions, such as campaigns for voluntary contributions." 

For example, the Mercer Super Trust's Index score at 31 December 2013 was 76.9, based on the data analysis results of over 83,000 members. 

The index score rose during 2013 due to strong share market returns, a higher than expected increase in the Australian Age Pension and a lower increase in the ASFA Comfortable Standard than expected for the year. 

Originally published by SMSF Essentials.

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