Same-sex couples misled by super calculators

By Lucy Dean

October 17 2017
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Super funds “need to consider” the diversity of their membership bases and provide inclusive tools, rather than “simply catering to the majority”.

Financial consultant Rice Warner has slammed superannuation calculators that are unable to produce retirement forecasts for same-sex couples, saying the gap in life expectancy between men and women is “reason alone” to consider more inclusive calculators.

Noting that about 66 per cent of Australians are married when they retire and that this number could rise to 70 per cent should same-sex marriage be legalised, Rice Warner said calculators in general need to improve to produce forecasts for joint superannuation accounts.

“Most married Australians share a common bank account but only a minority share a common superannuation fund,” Rice Warner said.

“Rice Warner believes joint superannuation accounts for married couples make sense and we have promoted the idea for many years.”

The firm explained that one advantage of funds having accounts for both partners is improved ease in producing accurate projections and the ability “to provide better information on which to deliver any financial advice”.

However: “At present, most benefit projections from funds are based on individuals, so only about 30 per cent have any accuracy and even these are subject to variability based on the assumptions used.”

Further, of a sample of funds, Rice Warner found that just 40 per cent provided retirement calculators that could produce forecasts for couples.

Within that figure, 73 per cent allowed for same-sex couple predictions, however this percentage was higher than Rice Warner expected. Nevertheless, the firm said the “broadening definition of a couple” means some calculators are due for revision.

Rice Warner also called out the Australian Securities & Investments Commission for providing a retirement calculator that, while catering for couples, does not require the gender of either person and as such “is not accurate”.

“Interestingly, some of the funds that do provide inclusive tools come from the faith-based sector which might prefer to stick to the traditional definition of marriage, whereas some of the funds that did not allow for same sex couples are amongst the largest industry funds with the broadest membership,” Rice Warner observed.

So, what does it come to?

Using figures from the Australian Bureau of Statistics, the consultant said same-sex couples tended to be more affluent as they were less likely to raise children than their heterosexual counterparts. As such, tailored calculators are required to produce accurate forecasts.

Rice Warner used the ABS statistics and its own software to produce projections for male/female, male/male and female/female couples on average salaries with life expectancies of the last survivor between 87 and 92, an average age of 45 and retirement age of 65.

Male/female couples were projected to earn a $58,000 income in retirement, while male/male couples would earn an extra $11,000 – bringing retirement earnings to $69,000. Female/female couples were projected to earn $63,000 in retirement.

Additionally, Rice Warner’s calculations only included SG contributions (no concessional or non-concessional contributions), wage inflation of 3.5 per cent and a growth rate in the consumer price index of 2.5 per cent.

These incomes, which include any relevant age pension payments, show that “the average couple will receive a comfortable living in retirement”, Rice Warner said.

However, the difference in life expectancy between genders (87 was predicted for men and 92 for women) is “reason alone” to provide calculators with tailored options. Rice Warner said they should be “designed to allow for the diversity in relationships as it has considerable impact on estimates of retirement income when optimising to life expectancy”.

The consultant firm continued: “Although the data shows same sex couples tend to be more affluent, higher joint life expectancy for same-sex female couples and differences in means testing are also crucial factors.

“Superannuation funds need to consider the diversity of their members by providing tools that are inclusive of the entirety of their membership rather than simply catering to the majority,” it concluded.

The Rice Warner research comes as Australia participates in a postal vote on whether the law should be changed to allow same-sex couples to marry, with 27 October set for the final day to submit votes.

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Retirement