The Association of Superannuation Funds of Australia (ASFA) has recommended the Government Actuary mandate the assumptions and rates of return used in superannuation forecasts while stating mandatory forecasts should be introduced from 2011.
In its response to the Australian Securities and Investments Commission’s (ASIC) consultation paper on superannuation forecasts, ASFA has referred to the forecasts as “retirement income estimates”.
The ASFA paper said there is a place for both paper-based and online calculator forecasts, but while paper-based retirement income estimates should be made mandatory as part of a member’s annual statement, online calculators should remain voluntary.
ASFA has suggested a two-phase approach that would see the estimates included in annual statements on a voluntary basis from July 1, 2010, and as a requirement from July 1, 2011.
The group said there should be exceptions to this rule, however, with inactive accounts and those with small balances exempt, as well as eligible rollover funds and self-managed super funds (SMSFs). ASFA also said consumers with pensions in payment and those aged 65 or older should not be required to be given estimates. Special treatment should be considered for defined benefit funds or member accounts, consumers within one to two years of customary retirement age and closed or legacy products.
The submission said legislation should be changed to allow both forms of calculation to be provided “without having to meet the requirements of the personal advice regime”.
“ASIC should grant relief for paper-based projections on an interim basis with a view to changing the legislation as soon as this is practicable,” the paper stated.
ASFA said rates and returns, which should be long-term in nature, should also be mandated by the Government Actuary, as should assumptions.
“Where projections are mandatory, assumptions should be mandated by the Government Actuary (or similar authority) so that there is no ability for a provider to choose their own assumptions (beyond the ability to insert actual details from the consumer or product),” the paper said.
ASFA said providers must be directed in regard to the rate of return they use so that providers have “no room” to pick a rate of return.
In regard to fees and costs, the paper said the “guiding principle should be a simple illustration of the adequacy of a person’s super”. The paper said while there is no consensus between members on this point, there is “growing support” for using a standard rate of return net of all fees and costs.
ASFA said the cost of insurance should be excluded from projections, with clear warnings that this is the case.
The schedule should be “simple”, perhaps in the form of a two-page document. ASFA said while key assumptions should be enclosed, “consumers do not need to see detailed calculation methods”.
The body also recommended the Government run an education campaign for consumers.
