POWERED BY MOMENTUM MEDIA
Consumption modelling to determine retirement income adequacy
Retirement income adequacy needs to be modelled on consumption needs as opposed to subsidising a percentage-of-salary model for all workers, AustralianSuper believes.
The superannuation fund said in its submission to the Government’s Retirement Income Review that the percentage-of-salary model led to low income earners aspiring to earn less than their model wages, while high income earners would seek taxpayer subsidies for a percentage of their high income being enjoyed in retirement which was inequitable.
“The taxpayer burden in super needs to be seen through the lens of minimum provision to support retirement objectives, rather than relative to wealth during employment,” it said.
The super fund said it supported a budgetary standard (Association of Superannuation funds of Australia Comfortable standards) over a replacement rate scenario as:
- Wages tend to fall prior to retirement as workers transition into retirement, but expenses don’t fall in the same way – they fall during the middle period of retirement;
- Replacement rates work best for those who work a full career in one job but may not adequately deal with those who spend part of their career working part-time, casual or are made redundant or unemployed. Actual salaries may not always be indicative of needs;
- Replacement rates do not work for the poorest of our society as they do not address poverty alleviation (for example, intermittent workers may need a replacement rate more than 100%); and
- Replacement rates may also entrench or replicate inequitable outcomes in retirement: For example, that males will require more income than females or home-owners may require more income than renters. Taxation of income can complicate the definition of replacement rates. While many replacement rates are defined on net income, some have been set on gross income.
Advantages of budgetary standards were:
- A budgetary standard is an appropriate measure when adequacy is focused on providing a minimum benchmark (e.g. poverty alleviation);
- Budgetary standards can more easily be linked to actual expenditure in retirement and can therefore be consistent with current retiree behaviour;
- Budgetary standards are simpler for the population to understand (one number for all or differentiated on a few key segments) and are therefore easier to communicate; and
- Budgetary standards seek to apply a more equitable retirement outcome across different cohorts in retirement.
Recommended for you
Super funds have built on early financial year momentum, as growth funds deliver strong results driven by equities and resilient bonds.
The super fund has announced that Mark Rider will step down from his position of chief investment officer (CIO) after deciding to “semi-retire” from full-time work.
Rest has joined forces with alternative asset manager Blue Owl Capital, co-investing in a real estate trust, with the aim of capitalising on systemic changes in debt financing.
The Future Fund’s CIO Ben Samild has announced his resignation, with his deputy to assume the role of interim CIO.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
76.97 3 y p.a(%)
2
Global X 21Shares Bitcoin ETF
76.46 3 y p.a(%)
3
UBS Solactive Global Pure Gold Miners UCITS ETF Dis USD
51.13 3 y p.a(%)
4
Global X GlobalX FANG+ ETF
45.15 3 y p.a(%)
5
Select Baker steel Gold Institutional
43.78 3 y p.a(%)
