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Assumptions

Early Access to Super Assumptions

As part of its response to the Coronavirus crises the Government has announced measures to enable members to access their super accounts. This comes at a cost. Part of that cost is the foregoing of future earnings on balances removed from superannuation accounts.

The cost of early access to super is developed by relying on a number of assumptions. The modelling used is not a projector of expected superannuation balances at retirement and should not be used as such. The modelling has been undertaken to show the estimated impact on retirement balances where an account balance is reduced by $20,000.

Withdrawal Amounts

$10,000 in financial year 2019-20 and a further $10,000 in financial year 2020-21.

Investment return

7% per annum (after performance fees). 

Inflation

Budget forecasts and projections are used until 2022-23.  Inflation of 2.5% per annum is assumed thereafter. 

Superannuation Balance

The median superannuation balance for a worker at five yearly intervals from 25 to 50 are calculated using the ATO 2 per cent sample file. A minimum of $20,000 superannuation balance is assumed.

Retirement Age

Assumes retirement at Age Pension age of 67.

Other assumptions

  • Outcomes are based on contributions being made annually, at the mid-year point, on fees being deducted annually and investment returns being credited to accounts annually
  • All amounts are in today’s dollars.

Scenario Models

Age Starting balance Super taken Difference at retirement
25 $20,000 $20,000 -$120,511
30 $40,000 $20,000 -$97,214
35 $60,000 $20,000 -$78,420
40 $79,000 $20,000 -$63,260
45 $95,000 $20,000 -$51,030
50 $109,000 $20,000 -$41,165

Assumptions for the Value of Super Commercial and Super Guarantee Calculator

Investment return

5.7% per annum.

Salary Increase

3.5% per annum.

Inflation

3% per annum.

Admin fee

$50 per annum.

Asset fee

1.1% per annum.

Insurance

No deductions are made for insurance premiums.

Advisor Fee

No deductions are made for advisor fees.

Other Assumptions

  • This model works for accumulation funds only. It will not work for defined benefit funds.
  • This model does not allow self-employed people to project their retirement balance
  • Outcomes are based on contributions being made annually, at the mid-year point, on your fees being deducted annually and your investment returns being credited to your account annually
  • We assume that your super is invested in a balanced option
  • Superannuation Guarantee Contribution is currently 9.5% and is presently legislated to incrementally increas to 12% by 2025.
  • The LISTO applies from 1 July 2017
  • No tax is payable on fees
  • We assume that you have provided your Tax File Number to your superannuation fund
  • All amounts are in today's dollars, which means they are adjusted for inflation
  • The assumed salary increase of 3.5% per annum has been adopted as an average figure based on a 37-year projection — that is, from the age of 30 to the retirement age of 67.
  • We assume that an annual inflation rate of 2%. In addition, a further annual increase of 1% is included to take into account the cost of meeting increases in community living standards. This means a total assumed inflation rate of 3% is allowed for. Employer and voluntary contributions, fees and the concessional contribution cap increase with inflation.
  • We assume that you will satisfy the Work test at older ages and so are able to contribute to superannuation
  • We assume that when you exceed the concessional contributions cap ($25,000 in 2019/20), you pay contributions tax according to your adjusted taxable income on any additional superannuation contributions
  • Assumes retirement at the preservation age of 67

Scenario Model

 

Age

Starting Salary

Difference

30

$86,000

$85,246

 

 

Accumulation Net Benefit model for: Compare the Pair advertising, the Compare the Pair tool and general performance claim in advertising campaigns

We have commissioned SuperRatings to undertake the research and modelling for some of our advertisements. SuperRatings is a ratings, research and consultancy company that specialises in analysing superannuation funds, their investment returns, their fees and the relative benefits they offer to their members. The Accumulation Net Benefit model, prepared by SuperRatings, calculates the variance in earnings and fees between Industry SuperFunds and retail super funds (also known as retail master trusts) over different time periods, with the default comparison being the 5, 10 and 15 years to 30 June 2019.

Background to the Accumulation Net Benefit model

Sample Set: The sample set used in the modelling contains the 15 Industry SuperFunds that participated in the marketing campaign as at 30 June 2019 and the retail super funds which are actively tracked by SuperRatings, including superannuation investment products that are open and those that are closed to new members but continue to hold assets.

As at 30 June 2019, the number of retail super products included in the sample set for each comparison period is:

Timeframe 1 Yr 3 Yr 5 Yr 7 Yr 10 Yr 15 Yr
Retail super products 166 147 133 84 67 44

Information about the Accumulation Net Benefit model

  • The model uses the main balanced investment option (being the balanced investment option with the highest level of assets) offered by each product provider in the sample set.
  • The model uses return and fee data that is submitted by funds to SuperRatings, made publicly available by funds or contained within formal fund disclosures as at 30 June each year.
  • Using the starting account balance and salary, the contributions, earnings and fees are calculated using 30 June data each year to derive the closing account balance at the end of each year.
  • The closing account balance for the previous year is then used to calculate earnings and fees on the account in the following years with the process being repeated for each year of the comparison.
  • The net benefit for each product refers to the cumulative earnings less fees for the relevant comparison period.
  • The average net benefit of Industry SuperFunds is calculated by taking an average of all net benefit outcomes at the end of the comparison period for the 15 funds in the campaign as at 30 June 2019.
  • The average net benefit of retail super funds is calculated by taking an average of all net benefit outcomes at the end of the comparison period for the retail products actively tracked by SuperRatings.
  • The net benefit is calculated for each product which has sufficient return and performance history information available over the entire comparison period. Where this information is not available, those products are excluded from the calculation.
  • The model assumes no additional contributions or withdrawals over the relevant comparison period.
  • The model will be updated annually with 30 June figures (available in approximately October each year), and the outcomes will be reviewed quarterly.

Other assumptions for the Accumulation Net Benefit model

Salary increase

3.5% per annum.

Investment Returns

Performance (Net Benefit) modelling is based on actual reported returns over the stated period.

When are investment returns credited to members’ accounts?

Annually.

Superannuation Guarantee Contribution

The Superannuation Guarantee rate used for each year's calculation is in accordance with the Superannuation Guarantee (Administration) Act. The modelling assumes no salary sacrifice or voluntary contributions.

Contribution tax

15%

When are contributions assumed to be made?

Quarterly in arrears (i.e. the first contribution is made 3 months after joining the fund)

When are fees assumed to be deducted?

Annually.

Tax rebate

A tax rebate of 15% is assumed on fees deducted from members’ accumulation accounts

Employer asset size

Members’ accumulation accounts are assumed to be in a ’small’ employer size of $150,000 in funds under management (FUM) at the start of calculation.

Inflation

2.5% per annum

Fees

All fee information is taken from the sample funds’ product disclosure statements or other formal disclosures at the end of each year in the calculation. Contribution fees, entry fees, exit fees, additional adviser fees or any other fees charged are excluded from this model.

Insurance

No deductions are made for insurance premiums.|

5 year outcomes

Scenario Starting Salary Balance Industry SuperFund net benefit Retail super fund net benefit Industry SuperFund account balance today Retail super fund account balance today Net benefit difference
General marketing claims $50,000 $50,000 $28,737 $23,346 $100,388 $94,997 $5,391
Executive ladies ‘Compare the Pair’ $90,000 $50,000 $32,388 $26,442 $121,359 $115,414 $5,945
Middle income men ‘Compare the Pair’ $59,100 $74,600 $41,648 $33,910 $141,839 $134,101 $7,738

 10 year outcomes

Scenario Starting Salary Balance Industry SuperFund net benefit Retail super fund net benefit Industry SuperFund account balance today Retail super fund account balance today Net benefit difference
General marketing claims $50,000 $50,000 $88,158 $75,393 $184,506 $171,741 $12,764
Executive ladies ‘Compare the Pair’ $90,000 $50,000 $107,038 $91,194 $240,464 $224,620 $15,844
Middle income men ‘Compare the Pair’ $59,100 $74,600 $124,672 $106,797 $254,055 $236,180 $17,875

15 year outcomes

Scenario Starting Salary Balance Industry SuperFund net benefit Retail super fund net benefit Industry SuperFund account balance today Retail super fund account balance today Net benefit difference
General marketing claims $50,000 $50,000 $145,458 $109,125 $271,017 $234,684 $36,333
Executive ladies ‘Compare the Pair’ $90,000 $50,000 $187,923 $142,355 $373,928 $328,360 $45,568
Middle income men ‘Compare the Pair’ $59,100 $74,600 $201,281 $150,590 $365,191 $314,499 $50,692

As at 30 June 2019

Pension Net Benefit model

Unlike the Accumulation Net Benefit model (above), which looks at the growth in an individual’s benefit during a member’s contributory phase of their superannuation, the Pension Net Benefit model focuses on the drawdown phase of a member in retirement.  The model seeks to calculate the de-cumulation of a member’s benefit within the pension phase over a 5-year period to 30 June 2019. 

The 5-year timeframe tracks the de-cumulation of a member’s benefit utilising each fund’s pension product between ages 65-69, commencing from 1 July 2014 and finishing on 30 June 2019.

Sample Set 

The sample set used in the 5-year modelling contains the 15 Industry SuperFunds that participate in the marketing campaign.

Information about the Pension Net Benefit Model

  • The model uses the main balanced investment option (being the balanced investment option with the highest level of assets) offered by each Fund.
  • The model uses return and fee data that is submitted by funds to SuperRatings, made publicly available by funds or contained within formal fund disclosures as at 30 June each year.
  • Using the starting account balance, the drawdowns, earnings and fees are calculated using 30 June data each year to derive the closing account balance at the end of each year.
  • The closing account balance from the previous year is then used to calculate drawdowns, earnings and fees on the account in the following years with the process being repeated for each year of the comparison.
  • The net benefit for each product refers to the cumulative earnings less fees for the relevant comparison period.
  • The average net benefit of Industry SuperFunds is calculated by taking an average of all net benefit outcomes at the end of the comparison period for the 15 funds in the campaign.
  • The model assumes no additional withdrawals over the relevant comparison period.
  • The model will be updated annually with 30 June figures (available in approximately October each year), and the outcomes will be reviewed quarterly.

Other Assumptions used for the Pension Net Benefit Model

Opening account balance

Each calculation timeframe assumes an opening account balance.

Investment Returns

Performance (Net Benefit) modelling is based on actual reported returns over the stated period.

When are investment returns credited to members' accounts?

Investment returns are credited annually, however, the total investment return is adjusted to take into account pension payments and fee deductions.

Pension drawdowns

Pension drawdowns are calculated utilising a drawdown level of 5% per annum (which is broadly aligned with the minimum legislated drawdown level for a member aged 65 at the commencement of the pension) and are assumed to occur monthly.

When are fees assumed to be deducted?

Annually.

Fees

All fee information is taken from the sample funds’ Product Disclosure Statements or other formal disclosures at the end of each year in the calculation. Establishment fees, buy/sell spreads, entry fees, exit fees, additional adviser fees or any other fees charged are excluded from this model.

Insurance

No deductions are made for insurance premiums.

As at 30 June 2019