Dear Actuary: The world of ASOP 51 risk disclosures
What are some of the risks related to ASOP 51 disclosures?
The superannuation industry isn’t quite sure what a comfortable retirement is – even as it desperately works to help members achieve that elusive goal.
It’s no surprise given the complexity of the task, which is affected by lifespan, personal expectations, government legislation, savings rates, market performance and more.
But the problem is that members are likely to become disengaged and lose trust in the industry when they read conflicting articles about how much they need to save:
These numbers stand in stark contrast to the median super balance at retirement (for those aged 60 to 64 years of age) of just $100,000 for men and $28,000 for women in 2013-14. Whatever estimate is chosen for a comfortable retirement, it’s completely out of touch for at least half the population. We owe them more.
The current crop of widely ranging estimates also leaves much to be desired for wealthier Australians. Super accounts for just a small component of net household wealth according to the Productivity Commission and wealthier people tend to have more assets outside of super. It’s just not possible for funds to estimate the level of super their members require when they don’t know the level of non-super assets they have and how they’re being used.
Milliman’s quarterly Retirement Expectations and Spending Profiles (ESP) report now allows funds to see that information by analysing 300,000-plus retirees’ spending data.
The Retirement ESP shows that Australians aged 65 to 69 spend a median of just $31,068 (from all sources including super, non-super savings and government benefits) each year.
To fund this expenditure with 75% certainty would require a superannuation balance of approximately $130,000 invested in a balanced fund. This also includes the substantial contribution of the Age Pension (set at a maximum of $20,745 a year), which funds a substantial portion of retirement income.
This isn’t to say that $130,000 should be a goal – it shows that even small differences in savings can have a hugely positive impact on members’ actual retirement lifestyles. This is the basis for true engagement.
The Milliman Retirement ESP also reveals the behaviour of retirees by wealth bands, age, singles versus couples, location, as well as showing their essential versus discretionary spending and how it changes through retirement.
This type of quality data is crucial given most members won’t seek personal financial advice. However, data is just one component of delivering a personalised retirement experience. It also takes powerful actuarial analysis and modelling to forecast how members are behaving now and in the future. This combination of data and analysis can then provide a sophisticated profile of members that can ultimately underpin and deliver the right products to the right members at the right time.
Each member must ultimately define their own comfortable retirement but it’s only by understanding their reality that funds can help them achieve it. This article was first published by Professional Planner. Read more about the Milliman Retirement ESP here.
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