Household wealth, not individual savings, should be the reference point in the design of comprehensive income products for retirement (CIPRs), according to Challenger head of retirement income Jeremy Cooper.

Too much emphasis on “average” superannuation balances for individuals creates a distorted picture that can lead to poor government policy and product design, he warned.

The Australian Prudential Regulation Authority (APRA) lists the average super account balance as $42,000, but this is “useless” for designing CIPRs as it fails to take into consideration aspects such as age and gender and household, Cooper said.

A Challenger report released on Monday compared the APRA data with household data from the Australian Bureau of Statistics (ABS) and Australian Taxation Office (ATO) to get a fuller picture of the nation’s retirement income needs.

Around 75 per cent of Australians approaching retirement live in a household and pool their resources to meet their combined expenses. Because this cohort is more representative of “the norm” the first CIPRs should be built with them explicitly in mind, the report concluded.

“Raw average account balances have the potential to misinform policy makers, researchers and super fund executives and trustees on how financially prepared members are for retirement,” Cooper said.

“Super wealth is most relevant at the point of retirement because that is what will determine how much income can be generated throughout retirement.”

The mean pre-retiree super balance for households is $432,042, though this still gives a distorted picture because some very wealthy individuals pull up the figure.

A better starting point is the median pre-retiree super balance for households of $184,189, which is more than four times larger than the average super account balance as recorded by APRA.

Cooper acknowledged that there will be many people that fall outside this group, particularly single women who have had broken working patterns, who will need other products designed with them in mind.

“We need to move on from the rhetoric that the super system is immature and secondly consider super wealth at this household level,” Cooper said.

He called on major super funds to do the necessary legwork to access data on whether members are going into retirement as singles or as a financial couple, as well seeking a better understanding about what wealth members hold outside of super.

“There is quite a long way to go in improving the data and improving what we make from it, particularly when we are moving into the world of CIPRs”.

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