Funds need to include income projections

Superannuation funds must start providing future projections of fund performance to members to increase engagement and ensure members are retirement-ready.

Such is the view of Macquarie Applied Finance Centre's Associate Professor, Dr Peter Vann, who said members remained clueless about how much income they were projected to have in retirement.

Vann said it was vital to provide information about what income and drawdowns members could expect out of their super account when they reached retirement, as recommended in the Financial System Inquiry (FSI).

"A very simple thing a super fund could do with their annual statement is tell members that their current superannuation balance and contribution level and investment strategy will have a good chance of supporting a $50,000 per year drawdown in retirement as a fortnightly pay check or whatever the time-frame is," Vann said.

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This facility could be a starting point in improving member engagement, as they would be more informed on how well funded they would be in retirement, and could take necessary steps early if they were falling short.

"A lot of people think they have $300-$400,000 and they think they're rich but that's not going to last them through retirement," Vann said.

"It leads to that last statement that people don't have a projection; they cannot see that $300,000 will only fund a low income in retirement, and that's the problem."

The member's age, how long they would contribute to their super, when they would start drawing down and the drawdown duration were vital factors for doing the calculations, he said.

The FSI recommended funds to include income projections on member statements based on the assumptions in the Australian Securities and Investments Commission's (ASIC) super forecast requirements.

But Vann said the corporate regulator used one constant investment return without accounting for different investment strategies, and the impact of the volatile nature of the calculations.