Super projections worse than 'weather forecasts'

Tim Stewart
— 1 minute read

Providing super members with retirement income projections is unlikely to provide any value and has the potential to increase administration costs, according to industry consultancy Sequential.

In its response to the Financial System Inquiry (FSI) last Tuesday, the government signalled that superannuation funds will be required to provide their members with retirement income projections in their annual statements.

The Turnbull government agreed with Recommendation 37 of the FSI final report that retirement income projections should be published on member statements "where practicable and cost effective".


In response to questions from InvestorDaily, a number of superannuation providers confirmed they are either already providing retirement income projections or intend to provide them soon.

A spokesperson for UniSuper said the fund provides retirement income projections for "most members with an accumulation product".

Construction industry fund Cbus trialled a 'retirements income estimates' publication with a small cohort of members in 2012-2013; and 131,000 REST members received retirement income projections in their 2015 annual statements.

Equipsuper ran retirement income projections on member statements for the first time this year, according to a spokesperson.

On the retail side, an AMP spokesperson said the group "intends to publish retirement income projections on member statements"; and a NAB spokesperson said personalised retirement income projections were offered to MasterKey Business Super customers in August 2015.

"We are considering expanding this across all [NAB/MLC] superannuation members in the future," said the NAB spokesperson.

But Sequential managing partner Adrian Johnstone was sceptical about the benefits members will get from a retirement incomes projection that looks 30 to 40 years ahead.

"It’s a little bit like the weather bureau telling you that they can forecast what the weather will look like for the week," Mr Johnstone said.

Such forecasts always come with a caveat, he said – such as "don’t make life decisions based on the fact that there won’t be an electrical storm".

By the same token, retirement income projections cannot take major market movements into account, which could "change the numbers dramatically" year to year, Mr Johnstone said.

"The issue is that the individual reading the statement isn’t necessarily aware of all of those changes that are going to occur," he said.

A retirement income projection is more of a "marketing number" for super funds (to attract continuing contributions) than a useful tool for members, Mr Johnstone said.

"There are so many variables that occur on a day-to-day, week-to-week, month-to-month basis that it’s not possible to forecast a number," he said.

Sickness, career breaks, stints living overseas or even government changes to superannuation policy could all affect super projections, Mr Johnstone said.

And the cost of calculating 'the number' is not insignificant, he said.

"The issue becomes that the amount of effort and expense that goes into trying to provide information in a meaningful way is then running counter to the argument of having to reduce administration costs in superannuation," Mr Johnstone said.


Super projections worse than 'weather forecasts'
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