Specific longevity data means better advice

Specific longevity calculations

Using more in-depth analysis to determine the life expectancy of an SMSF trustee can improve the value of retirement advice provided to this cohort, a technical specialist has said.

A leading actuarial firm has suggested financial advisers use specific SMSF trustee longevity calculations as opposed to general population averages to improve their value proposition to retirees.

During a webinar her firm hosted today, Accurium SMSF technical services manager Melanie Dunn pointed out there are two factors that indicate SMSF trustees will live longer than the average Australian, suggesting retirement planning, in particular for longevity risk, using data based on the general population could be inadequate.

“Some general attributes of SMSF trustees as a cohort is that generally they are wealthier and better educated than the average person,” Dunn said.

“In fact, ATO statistics from a couple of years ago showed the average taxable income of an SMSF trustee was some 83 per cent higher than for other super members. As statistics regularly show, the average super balance of SMSF members far outstrips those of the population as a whole.

“There’s also some data to suggest SMSF trustees are better educated than average. One survey from a few years ago showed that 81 per cent hold a tertiary education compared to around half of the population as a whole.

“Wealth and education are often linked to higher longevity so all of this suggested SMSF trustees might be expected to live longer than average.”

She admitted no official data is available to back up this hypothesis, a situation that prompted Accurium to use its database of around 65,000 funds to test the theory.

“The majority of trustees in our database were aged 55 to 75 and our analysis found that for this cohort there were only 32 per cent of the number of deaths we would have expected based on population mortality rates,” she said.

“The study showed that people with SMSFs were far less likely to die during these ages than the average Australian.”

While this analysis indicates the inadequacy of applying average life expectancy rates for retirement advice regarding SMSF trustees, these rates may not be applicable for any longevity risk strategies, she said.

“Due to the skew in distribution of expected outcomes, what we find is that actually over 50 per cent of people are expected to live beyond their life expectancy,” she revealed.

“Would your clients be happy to have a greater than 50 per cent chance of running out of money before they die?”

For these reasons, Accurium has always favoured stochastic modelling as a means of gauging life expectancy.

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