Despite being a growing reservoir of funds under management, this critically important pool of capital is confronting mounting problems collating and disseminating key data in a timely manner.
The ratings house is pinning its growth strategy on a revamped methodology that increases the emphasis on governance to 25 per cent – a timely move considering APRA’s proposed reforms.
… and improve standardisation of retirement calculators
(pictured: Ian Fryer)
Online calculators that generate income projections represent a good way to focus members’ attention on their retirement. But the calculators provided by Australia’s biggest funds, as well as ASIC, offer widely different answers to basic questions.
According to a study by Chant West, the projections provided by calculators used by seven big public offer funds – covering more than eight million members – show a 55 per cent difference between the lowest projected lump sum and the highest, given the same member input. And the new ASIC calculator provides a lower projected figure still.
Ian Fryer, Chant West head of research, says calculators are becoming more common, but to be really useful they need to be more comprehensive and more consistent in their assumptions and outcomes.
He also says that retirement calculators need to be focused on retirement income, rather than lump sums which may be meaningless to the average member a long way off retirement.
Highlights from the study include:
- There are significant differences in results produced by retirement calculators, using their default assumptions.
- Using the calculators of seven large funds, the same case study shows projected lump sums ranging from $242,081 to $376,809 (a difference of 55 per cent). ASIC’s MoneySmart gives an even lower projected lump sum of $235,064.
- The main reason for the large differences is the wide range of assumptions used, with net real returns ranging from 0.44 per cent a year to 3.05 per cent. ASIC’s MoneySmart uses a lower annual net real return of 0.33 per cent.
- There may be a case for standardising assumptions used in retirement calculators, or requiring sign-off from the regulator or an actuary if different assumptions are used.
- Retirement calculators need to be focussed on income and should reference ASFA’s retirement standards to show what level of retirement income is required for certain lifestyles.
