Evaluating ASFA's Lump Sums for Retirement Planning

“How much super will I need for retirement?”

This question of adequacy is one of the most commonly asked questions by anyone who has engaged with their superannuation. Yet, it is also one of the most challenging questions to answer definitively as it depends on numerous factors, such as life expectancy, employment patterns, investment returns, inflation, personal goals and risk tolerance. 

Most of these factors vary from one super fund member to another, leading to answers that are inherently personal and unique. To help simplify this complexity, some organisations have developed general guidance to help inform and educate members – the most publicised figures ^[1] being those published by the Association of Superannuation Funds of Australia (ASFA).

In addition to the standard figures provided by ASFA, many superannuation funds also provide personalised super forecasts to their members (through annual statements or access to superannuation calculators) that may help answer the question “how much super will I have at retirement?”

As actuaries that specialise in helping super funds answer this question, we have observed that the assumptions underlying super forecasts provided by funds and the widely publicised ASFA guidance can differ significantly.

When these differences are not clearly explained, they may lead to confusion and undermine the confidence super fund members have in their retirement estimates, potentially discouraging engagement with the adequacy question.

In this article, we explore ASFA’s approach to estimating the lump sum value required to maintain a certain spending level in retirement. We consider how this approach compares with industry practices and discuss opportunities to improve alignment and transparency.

ASFA Retirement Standard

Along with the ASFA Retirement Standard total income and budget breakdown, the ASFA website includes a superannuation balance (lump sum) required to achieve an “ASFA Comfortable” and “ASFA Modest” spending level in retirement.

The following table outlines the ASFA Comfortable income standard as of March 2025 and the disclosed lump sum required to maintain this spending level in retirement from age 67.

The ASFA income standards provide significant value to members to understand ballpark living expenses and budget in retirement. We consider that the methodology is sound and transparent, the standard has longitudinal consistency and reliability, and it provides a meaningful and objective standard that individuals, funds and advisers can use to begin meaningful preparation for retirement.

However, we believe the estimated lump sum amount could be improved in two areas: (1) further disclosure of assumptions; and (2) greater consistency with industry regulatory standards.

Disclosure of assumptions

In our view, it is best practice for any form of super forecast to clearly disclose the methodology and assumptions used in the calculation, especially if it is made available to the public. This improves transparency and confidence in the numbers provided.

ASFA discloses the following information in their lump sum calculation:

• figures are in today’s dollars using 2.75% p.a. Average Weekly Earnings (AWE) as a deflator
• assumed investment earning rate of 6% p.a.
• allows for the Age Pension.

However, many other assumptions are not disclosed, the key ones being:

• period of retirement income
• rate of income indexation
• rate of means tests indexation
• allowance for administration fees
• allowance for tax.

Without clear and comprehensive disclosure of calculation methodology and assumptions, it becomes difficult to reliably replicate ASFA’s lump sum values or understand how they differ from those provided to members via super forecasts in their annual statements or superannuation calculators.

Comparison and consistency with industry regulatory standards

Superannuation funds that provide retirement estimates to members in annual statements, or that provide members access to superannuation calculators, need to comply with the ASIC Corporations (Superannuation Calculators and Retirement Estimates) Instrument 2022/603 ( CI 603 ), which gives relief from financial product advice requirements. To rely on this relief, trustees of super funds need to use the assumptions and methodology outlined in the Regulatory Guide 276.

As ASFA is not a superannuation fund trustee, its super forecasts are not subject to these regulatory requirements. In respect of wage inflation and discounting to today’s dollars, ASFA has chosen not to align with the CI 603, as described in RG276, for the calculation of its suggested lump sums.

While ASIC prescribes a wage inflation assumption of 3.7% p.a. and a post-retirement discount rate of 2.5% p.a. reflecting assumed price inflation, ASFA uses 2.75% p.a. for both inputs. Using a lower wage inflation rate significantly reduces the value of the Age Pension (which is indexed with wages) as a key income source alongside super, and to a lesser extent reduces assumed real investment returns during the retirement phase.

These deviations from the RG276 assumptions result in a materially larger superannuation balance lump sum required at retirement to support the same level of income alongside the Age Pension.

In the table below, we provide the following calculation of the superannuation lump sum required to maintain the ASFA Comfortable income standard alongside the Age Pension using assumptions consistent with RG276:

As the table shows, ASFA’s guidance to the Australian public is that consumers need at least 75% more than the amount their super fund would present as adequate for the same income. The significant difference in the amount required to maintain the same spending level in retirement under the two calculations could lead to confusion and lack of confidence in the super forecasts provided by the superannuation industry.

We understand that some super funds’ calculators require users to accept assumptions up-front that differ from RG276 default assumptions, which could lead to further differences between calculator results and retirement estimates on statements. However, super funds don’t generally publish adequacy standards and most public calculators, including the MoneySmart calculators provided by ASIC, use the same assumptions and methodology as outlined in RG276. As a result, ASFA’s approach deviates from the rest of the industry.

What default assumptions are reasonable?

A key question that remains to be answered is whether the assumptions used by ASFA or the assumptions prescribed in RG276 are more reasonable for super forecasts.

When determining the default assumptions in the ASIC instrument, ASIC undertook a consultation process to obtain feedback from the industry and the Australian Government Actuary to ascertain the suitable set of default assumptions to be used in super forecasts.

Certain industry participants, including some actuaries, may not be comfortable with some of the individual default assumptions prescribed in RG276. For example, ASIC instrument requires retirement estimates to be carried out to age 92 and some actuaries believe this does not sufficiently allow for longevity risk particularly for married retirees. Even if there are differences in opinion about the individual default assumptions, there is a broad consensus that when the assumptions are taken as a collective, they are fit-for-purpose for super forecasts.

On the other hand, it remains challenging to assess the appropriateness of the ASFA assumptions as the entire set of assumptions is not publicly disclosed. In discussions with ASFA, we have been informed that retirement income and Age Pension indexation are at 2.75% p.a. and that the Age Pension is assumed to be tax-free.

Nevertheless, even after allowing for these assumptions, we were not able to replicate ASFA’s published lump sums. The fact that ASFA’s lump sum estimates are markedly higher than the those calculated under RG276 suggests that their assumptions may be relatively conservative overall.

Based on our assessment, options that ASFA could consider to improve the Retirement Standard in the public interest include:

Option 1 : ASFA clearly disclose the full set of assumptions used in the lump sum calculations and; 

• aligning the assumptions and methodology with ASIC regulations; or 
• informing consumers that ASFA’s lump sum figures are not directly comparable with retirement estimates provided by super funds.

Option 2: Discontinuing the publication of ASFA’s lump sum figures and instead focus only on income standards, allowing superannuation funds to translate these into lump sum targets using consistent assumptions in line with ASIC regulations.

In summary

While the ASFA Retirement Standard provides valuable guidance for understanding retirement income needs, there are notable differences between ASFA's lump sum estimates and those provided by superannuation funds.

These differences, primarily due to varying assumptions and methodologies, can lead to confusion and undermine confidence in retirement estimates among super fund members. 

To promote transparency and consistency across the industry, we encourage ASFA to consider aligning its assumptions and methodology with ASIC regulations and fully disclosing the assumptions used, informing consumers that its lump sum figures are not directly comparable with retirement estimates provided by super funds, or discontinuing the publication of lump sum figures and focusing solely on income standards. 

By doing so, ASFA can help ensure that members receive clear, consistent and reliable information, ultimately strengthening their engagement and confidence in retirement planning.

Reference note

For transparency, we have used the following assumptions in the calculation of the lump sum values under RG276 requirements.

References

^[1] We note Super Consumers Australia also provide various lump sum benchmarks .