Some funds assume returns before fees and tax, while others are net of fees and tax, and others still are a mixture.Our analysis did include another major fund (Fund H) that is not shown in the illustrations because it doesn't project lump sums, but it's return assumption is higher still at 7.0%
The assumed annual return for the default growth option ranges from 5.75% (Fund G) to 6.5% (Funds B and F).These and other key assumptions are set out in Table 1 which shows, for example, The most obvious – and the most influential in terms of the results they produce – are to do with investment returns. These vary enormously and, because even small differences have a big impact over long periods, they are responsible for the wildly differing outcomes. The answer, of course, is to do with the assumptions behind each calculator. Note: ASIC’s projected lump sum is based on a revised calculator that will be released shortly. How can this be?īased on: Male aged 35 salary $60,000 account balance $50,000 SG contributions only default assumptions no career breaks retirement age 65. MoneySmart gives the lowest projected lump sum while other funds range from $242,081 (Fund G) to $376,809 (Fund B) – that’s about 55% more. The degree of inconsistency – and the divergent results it produces – is quite remarkable. Chart 1, shows the benefit projections for a simple case study using the online calculators of seven of the largest public offer funds in Australia (representing over 8 million members), together with ASIC’s superannuation calculator on its MoneySmart consumer website. Sadly, that same trait is evident when it comes to online calculators. Our industry is notorious for inconsistencies between funds in product design and disclosure, most notably in the areas of fees and insurance. First, how about some consistency?īefore we consider what the ideal calculator might look like, we should give some thought to the basic issue of consistency.
Developing these calculators is one of the fastest growing areas of member services and it's one where funds can create a point of difference by doing it better. So funds need to find another way, and that's where online calculators come into play. While one on one advice might be the ideal way of conveying these messages, we know that only a small proportion of members will avail themselves of it. Now they have something they can relate to and, if they feel it's not going to be enough, it might just spur them to take some action such as contributing more or changing their investment option. Is that a lot? Too little? About right? It only starts to become real when they're also told on their statement that they're on track for a retirement income from age 65 of $30,700 per annum – that's in today's dollars and includes the Age Pension. It means very little, for example, to a 40 year old to be told that they have $150,000 in their account. Until quite recently, for example, almost all member statements have referred to benefits exclusively as lump sums, despite those figures having no context and therefore no relevance to the member's everyday life. To the average fund member, that sort of number is so far removed from reality that they pay no attention, which is a shame because the underlying debate about contribution levels, asset allocations, retirement ages etc is important.Īt the member communication level, too, the industry has tended to speak in a foreign language. Witness the recent debate about whether $1 million at age 65 is "enough". We forget that the real world is not populated by actuaries. The media loves talking in big numbers, and sadly the superannuation industry is only too happy to oblige. These are becoming more common, but to be really useful they need to be more comprehensive and more consistent in their design, assumptions and outcomes. One way to change the focus is through online calculators that generate income projections. To the average member, some of the numbers bandied about sound more like Lotto prizes than real life targets, so no wonder they switch off and fail to engage. That's hardly surprising, considering that most of the public discussion focuses exclusively on lump sums. The ultimate purpose of superannuation is to provide an income in retirement, but often that fundamental point is lost.
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