Superannuation

Superannuation exists to provide for retirement, so part of every retirement plan should involve estimating how long you might need your super to last. To help answer this question, the government provides tables that show average life expectancy for Australians at different ages.

The tables of life

For example, the current average life expectancy for a 55-year-old female, according the Australian life tables, is another 30.5 years while for a male the same age it’s just under 27 years. This suggests that, on average, they will respectively live to 85.5 and 82 years.

At 65, the tables calculate a life expectancy of 21.6 years for a female and 18.5 years for a male. This suggests that on average they will respectively live until 86.6 and 83.5 years.

The improvement in life expectancy indicates that, once you do get to a certain age, your prospects of living to an older age increase. For instance, the numbers for 70-year-olds are female/male average life expectancies of 17.4 and 14.7 years with average ages of 87.4 and 84.7 years. At 75, the female/ male life expectancies are 13.5 and 11.3 years, suggesting ages they could live to on average of 88.5 and 86.3 years.

So the older you get, the longer you might live.

New numbers on the way

An interesting thing about these numbers is that they are already dated because they are based on calculations carried out between 2005 and 2007.

New numbers are in the process of being calculated, with the 2011 national census on August 9 an integral part of this. Life tables are based on the mortality the deaths at specific ages of Australians in the three years centred on each census. The current tables cover the years from 2005 to 2007 (which centres on the 2006 census) while the next lot will cover the period from 2010 to 2012 with the centre being the 2011 census.

One thing that is predictable from the next lot of numbers is that they will show improvements in life expectancy for both sexes. Also expected to improve is the reduction in the gap in life expectancies between males and females.

Detailed calculations

For retirees, life tables serve a number of purposes. As well as giving an idea of how long you might have to fund your retirement, they are used in age pension calculations to determine the assets test-free proportion of account-based pensions funded by super.

Under the age pension rules, while the super committed to an account-based pension is fully counted under the assets test, under the income test it is treated more favourably. While the actual income is income test assessable, a generous exempt amount reduces the incomes test assessable income.

The exempt amount is calculated by dividing average life expectancy number from the life tables’ for the retiree when the pension is started into the pension account balance. A 65-year-old female with an average life expectancy of 21.6 years and a pension balance of $500,000 is entitled to treat about $23,130 of a pension they take as exempt under the income test (that’s $500,000 divided by 21.6).

While the income test treatment of super may not be relevant for someone today who has significant super assets (because the assets tests will disqualify them from any government pension) once super assets run down and the income test applies, the exempt entitlement will come into its own.