I have been waiting for this ASIC release! ASIC have released a new Regulatory Guide 229 for superannuation forecasts. There is also a new class order relief (CO11/1227) for superannuation fund trustees providing retirement estimates which may be personal advice. The class order relief for providers of generic calculators (CO 05/1122) is also relevant.
The content requirements for CO11/1227 include:
- The end benefit must be presented as both a lump sum and annual income stream with rounding to $10,000 and $1,000.
- Current balance from member’s periodic statement.
- Real investment earnings of 3% p.a.
- Past 12 months admin fees.
- An assumed age 65 retirement and a 25 year drawdown period.
- Insurance as per previous 12 months.
The forecast must not consider the potential effect on the member’s end benefit of any entitlement to the age pension or any other fund accounts that the member might hold. In a single stroke, ASIC have made these forecasts totally useless. In my PD sessions, I show a typical Australian at retirement where (if no Age Pension is included) the money will last 11 years for the desired modest income. It will last 26 years with the Age Pension!
These retirement forecasts are simply going to make the vast majority of people approaching retirement depressed about their retirement income. I will read the various ASIC items in depth and produce some examples.
Results need to be expressed in today’s dollars. That is worthwhile. Calculators are more useful than forecasts as they allow members to explore the effects of making alternative decisions e.g. contribution levels, retirement age, fees etc. The challenge for NetActuary is to evaluate what changes would be desirable to the existing accumulation calculators to mirror developing practice and regulatory comfort in this area, while at the same time being genuinely useful tools. I am very conscious that many retirees are couples and the planning focus is on the future needs of the couple – including periods when both and only one will be alive.
The NetActuary Team