Superannuation and Investments
Part 3: Mandatory, Standardised Retirement Estimates
Industry topics
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In Part 1, we argued for mandatory retirement estimates that include a total retirement income – allowing for the Age Pension – and the benefits of standardisation and flexibility. In Part 2, we explored key aspects of standardisation around data, products, assumptions, preferences, presentation and selection.
In the final article of this series, we will compare the preferred approach we have outlined in Parts 1 and 2 with the current situation.
At present, retirement estimates are not mandatory at either the provider or account level, but there is significant standardisation in ASIC regulations (RG276):
We think these points of standardisation are generally suitable, but some amendments would improve the quality and availability of retirement estimates.
We believe it should be mandatory for all public offer superannuation product providers to provide retirement estimates to eligible members. It is not reasonable to expect SMSFs to provide retirement estimates given the level of member control. Corporate and closed funds may not have the resources or benefit designs that support retirement estimates.
Improvements are possible around member circumstances and preferences. Allowing funds to gather and use credible data regarding risk attitude, retirement age, partner, and homeowner status, and retirement income/duration would permit more personalised retirement estimates and better member engagement. Members may even be given the opportunity to provide their product preferences for future retirement estimates.
Showing up to three representative product scenarios could give providers the opportunity to educate members on the impact of the options they have available to them. These scenarios should be compared on a holistic basis covering investment, inflation, longevity and adequacy risks.
We believe there is value in a retirement estimate even for members already in the retirement phase, as retirees still have levers to influence their retirement income. We would like to see the exclusion on retirement phase accounts removed.
In the area of investment returns, our view is that it is more important for retirement estimates to cater for intra-fund consistency than inter-fund comparisons, as members would normally engage with just one fund at a time and expect to see investment performance aligned with retirement estimate assumptions. However, we accept that providers have much less influence over deflators, and that it makes sense to have numerically prescribed deflators to support credibility and inter-fund comparability.
To the extent possible, we would like to see providers of retirement estimates use economic assumptions consistent with prescribed deflators or at least proactively disclose if they do not. Disclosure of the economic assumptions should be sufficient to explain differences that might surface in inter-fund comparisons.
Disclosure of the key assumptions behind a retirement estimate in a simple standard format will not only make disclosure more straightforward but will also help educate consumers on the more important variables that impact their retirement. In the Technical Paper Principles for Retirement Modelling, the key items used in retirement estimates are suggested to be disclosed in this order:
In view of the engaging, educative and practical value of good retirement estimates, we contend that it should be mandatory for all public offer superannuation providers to provide retirement estimates.
To cater for the challenge of data gaps in preparing retirement estimates, we propose a balance of flexibility and standardisation as follows:
| Area | Standardised | Flexible |
| Member data | Basic member data as held by administration systems | Additional data about member circumstances |
| Product data | Product features for current accumulation product | Options available to member in retirement |
| Economic | Price and wage deflators | Investment returns |
| Retirement decisions | Retirement age and period | Choice of product |
| Presentation | Key content and disclosure of assumptions | Layout, branding, benchmarks |
| Selection | Minimum membership, balance, contributions | Any further criteria to avoid misleading estimates |
By implementing these changes, the superannuation industry can help more Australians understand whether they're on track for retirement and reframe superannuation as a source of retirement income rather than merely an accumulation target.
The authors would like to thank Colin Grenfell, who peer-reviewed this series.
