Lack of progress and Insufficient urgency were the phrases used in the recent APRA/ASIC joint review to describe the Retirement Income Covenant implementation by superannuation fund trustees. The fundamental obligation is to help members prepare for retirement. An obligation that remains unmet for the baby boomer generation transitioning into the next phase of life, where tough decisions lie ahead considering financial security for a potentially lengthy retirement, spending wisely, and maintaining their accustomed lifestyle.
How can trustees lift their game and support members preparing for retirement more effectively?
The realities of longevity
The Retirement Income Covenant recognises that longevity risk must be considered first and foremost, as the longer you live, the more exposed members are to all the other associated retirement risks. Super funds must now have a retirement income strategy that clearly sets out how the trustee will assist their members in managing the risks to the sustainability and stability of their retirement income. To do this, trustees need to understand how their members use their chances of living longer to make retirement decisions.
Research by Abigail Hurwitz, Olivia S. Mitchell and Orly Sade [i] concludes that good financial retirement decision-making requires a well-informed notion of life expectancy and longevity risk. Yet, the level of longevity awareness is poor. They write, “Providing them with information about longevity can improve their decision-making“.
So, what can trustees do to help improve the longevity awareness of their members? A good starting point would be to help members understand two key numbers as they approach retirement:
- how many more years they are likely to live; and
- the probability of living much, much longer.
We don’t have enough data
Two key findings from the APRA/ASIC review were the need to better understand members’ needs and design fit-for-purpose assistance. Based on the research, trustees should start by understanding members’ longevity awareness and developing strategies to improve it. Only then can they deliver practical assistance to members.
One of the tools a trustee can use to help their members improve their longevity awareness is the Optimum Pensions Lifespan Calculator, which has been designed to help answer the big question in retirement planning: How long should my retirement income last?
With updates based on feedback from nearly 10,000 users and the latest life expectancy data and trends, see how trustees can use the Lifespan Calculator to help their members estimate their personal expected lifespan and possible retirement planning horizon.
Make progress. Increase the urgency. It’s the only way towards a comfortable retirement.
[i] “Do People’s Longevity Expectations Shape Their Key Financial Decisions?”, Abigail Hurwitz and Orly Sade, https://whr.tn/474oUoT