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 IndexTM’ 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.
The Mercer Retirement Readiness IndexTM (RRI), tracks the overall retirement readiness of a super fund’s membership and enables super funds to measure, over time, how effectively they are meeting their ultimate objective, which is to help members to achieve an adequate income for a comfortable life during their retirement.
The Index compares the projected retirement income with the ASFA Comfortable Retirement Standard, 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. Based on these assumptions members are allocated into green, amber or red zones and a fund is 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,” said Dr David Knox, Senior Partner at Mercer.
“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,” he said.
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.
Based on Mercer’s broader analysis, women and those aged 60 or older are most at risk with 68.4 per cent of male members generally projected to retire in a good position compared to only 54.2 per cent of women; almost half (49.5%) of those aged 60 to 65 will struggle financially if they do not make some changes to their superannuation savings.
Assumptions in the Index include, amongst other things, future superannuation contribution (SG) rates at the mandatory level phased from 9.25 per cent to 12 per cent in 2019.
For further information or to arrange an interview with Dr David Knox, please contact Bronte Tarn-Weir
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