Joint bodies welcome research on retirement standards

The report proposes a new approach to retirement income targets based upon expenditure patterns in Australia by retirees sourced from the Australian Bureau of Statistics (ABS) data and is paired with savings targets designed to assist retirees to better meet their chosen retirement income target.

In a joint submission, CPA Australia and Chartered Accountants Australia and New Zealand said they generally supported the concept of a retirement standard based upon expenditure.

The joint accounting bodies welcomed the work undertaken by Super Consumers Australia, stating that preparing retirees for likely required retirement savings will assist in helping retirees to meet their preferred expenditure level.

The submission cautioned, however, that a one-size-fits-all approach is potentially capable of focusing on one type of retiree at the expense of other retirees.

“We believe that with the use of technology, adjustable parameters and a wider range of inputs, the model can be developed further to ensure that as many Australians as possible are able to benefit from this project,” the submission stated.

For example, the submission suggested that the model could be augmented to recognise rental costs.

Super Consumers Australia stated in the paper that it had opted not to include retirement standards for renters given the “prevalence of income poverty and financial stress among retired renters, and their likely inability to achieve aspirational targets”.

The joint bodies stressed that if Australians are failing to meet these targets, this in itself is crucial data for public policy purposes.

“Standards for renters are not only desirable, but inevitable. The overall declining rate of home ownership, together with the ongoing issue of inadequate assistance provided to renters in private rental circumstances mean that renters cannot continue to be footnoted as trivial compared to homeowners in retirement,” the submission stated.

The submission also noted that a model based primarily on expenses rather than on a measure of income would need to acknowledge that expenditure declines in retirement, especially later in life for many retirees reducing their basic living and lifestyle expenditure, but then increases to cater for meeting aged care and healthcare costs.

“This upturn in expenditure towards the end of one’s life is sometimes referred to as the ‘retirement smile’,” the submission explained.

An allowance in the model for the “retirement smile” may assist Australians to allow for larger late-life expenses such as aged care and healthcare, the submission noted.

The submission also stressed that it is important that the model can assist users of different genders, investment approaches, work patterns and geographical locations.

CPA Australia general manager of media and content Dr Jane Rennie said the standard represents a useful starting point for financial advisers in setting realistic expectations for their clients.

“This can then lead to valuable planning ahead of retirement,” said Dr Rennie.

“We anticipate that future plugins, calculators, mobile apps and other technology will be able to use the information contained in the standard. This could ensure better client engagement either during the advice process, or in later years when clients’ situations are being reviewed.”

Dr Rennie noted that the assumptions used in arriving at the proposed retirement standards are capable of being adjusted, so that they can more accurately allow for client preferences that are less typical, such as income levels, contribution patterns and investment profiles.