Neale Prior: Super Consumers Australia finds dodgy numbers in some superannuation calculators don’t add up

Super Consumers Australia has pointed to a gaping hole in our savings system, with a report ripping into publicly available retirement calculators.

It highlights the lack of high-quality tools to help us calculate how much we will spend each week, month and year in retirement.

Without a well-founded understanding of our potential retirement spending, it is extremely difficult to understand the adequacy of our superannuation and other savings.

Any predictions of our future savings and our age pension entitlements are little more than uneducated guesses, made worse by calculators too often ignoring what we will actually need to draw down from our super in retirement.

The calculators use the term “retirement income” to describe how much we will draw down each year and our age pension entitlement.

Never mind the semantics of income being an inaccurate way to describe super savings we withdraw — how this “retirement income” figure is calculated is a mess.

The SCA report found the greatest discrepancies between the 22 super retirement calculators was caused by their assumptions about a person’s retirement income.

This so-called “retirement income” had a greater impact than the investment returns and fees assumed by the calculator.

Yet only three calculators — UniSuper, Aware Super and Brighter Super — provided limited information upfront for people to calculate a target annual income in retirement.

CareSuper, NGS Super, Australian Ethical, Equip Super and Mercer Super all assumed spending based on superannuation industry lobby group the Association of Superannuation Funds of Australia’s contentious “comfortable” retirement standard.

“This default income target doesn’t consider whether a person’s retirement balance could sustain this level of income or what a person’s spending needs might be,” the SCA report said.

A total of 17 calculators were based on either ASFA’s “comfortable” retirement standard or a method called “replacement rate”, which assumed a spend as a proportion of the person’s pre-retirement income.

While less critical of the replacement rate than the ASFA standard, the SCA report said both methods made “broad assumptions” rather than considering a person’s actual spending needs.

“People who rent and people who are on lower incomes may need a higher replacement rate, while those on higher incomes may need a lower replacement rate to maintain their spending needs,” SCA said.

The report highlights the clear need for Australians to be provided with clear tools for working out how much we are likely to spend in retirement.

There are reams of research carried out over decades about the retirement spending of Australians and factors contributing to a variety of spending levels.

Given the Federal Government has hundreds of billions of dollars invested in the retirement system through super and the age pension, the creation of a decent set of retirement income calculation tools is in the interests of all taxpayers.