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Superannuation calculator regulatory update goes live

Tuesday, 20 December 2022

Further to our post on 14 July, the required regulatory changes were released in an update that included the following changes:

• Standard default inflation rates of 4% p.a. for salary growth and 2.5% p.a. for price growth
• Ensure that default investment returns are consistent with the standard default inflation rates (RG 276.212)
• Future values are deflated using salary growth for the period up to retirement age and price growth for the period after retirement age
• Relevant disclosure updates that reflect these changes

The changes that will be most obvious to users of the Retirement Income Simulator are in relation to retirement adequacy. To speak meaningfully of a level of retirement income, you need to index the income at the same rate you deflate it. ASIC now requires that retirement income is deflated with price growth; we have therefore changed the indexation of retirement income to price growth, instead of wage growth. This will give the appearance that retirement incomes are higher, last longer or both. In reality this is because retirement incomes grow more slowly under the new approach, and will not keep pace with improvements in living standards enjoyed by the wage earning community.

A related change is the presentation of the Age Pension. In reality, the Age Pension is indexed with the higher of wage and price inflation; in the long term this is wage inflation. Hence in the Simulator, you will see the Age Pension growing in real terms even after the maximum entitlement is reached. This is because it increases with wage growth, but is being deflated with price growth.

Tags: regulation

Superannuation calculator regulations updated

Thursday, 14 July 2022

On 30 June 2022, ASIC released Corporations (Superannuation Calculators and Retirement Estimates) Instrument 2022/603 and Regulatory Guide 276: Superannuation forecasts: Calculators and retirement estimates. (Superannuation calculators have been removed from the existing generic calculators instrument.) The majority of the changes are focused on retirement estimates, but there are some changes for superannuation calculators. Key points are:

• The Retirement Income Simulator is a superannuation calculator under the new regulations
• Superannuation calculators are member data agnostic
• Personal data can be inputted into a superannuation calculator
• 'Inputted' includes inputted with member consent
• Super calculators must use standard default inflation rates of 4% p.a. for salary growth and 2.5% p.a. for price growth
• Providers of calculators are encouraged to ensure that their default investment returns are consistent with the standard default inflation rates (RG 276.212)
• Future values must be deflated using salary growth for the period up to retirement age and price growth for the period after retirement age
• The disclosure requirements are unchanged from the generic calculators requirements

There is a six month transition period to the new regulations, which must be complied with by 1 January 2023. We are expecting to have the Retirement Income Simulator updated well before that.

Tags: regulation

Deeming rate changes July 2019

Thursday, 18 July 2019

Following further reductions in the RBA cash rate, the Government amended the income test deeming rates to better reflect what retirees might actually earn on deposits. The new lower rate of 1% p.a. and upper rate of 3% p.a. have now been applied in the Simulator.

Tags: updates

Calculator update July 2019

Wednesday, 3 July 2019

Today we released the updated Retirement Income Simulator for the 2019-20 financial year. There were no changes to the underlying calculations, just parameter updates as follows:

• Co-contribution eligibility income threshold
• SG maximum contributions base
• Age pension means test and deeming thresholds
• Underlying indexed values of contribution caps and transfer balance cap

We have chosen not to include the Low Income Tax Offset and Low and Middle Income Tax Offset at this stage, based on their relative size and the fact that they have no impact on super. If proposed changes now before Parliament are passed, we will review this decision. At present we are also considering modelling future income tax threshold changes that will occur from 2022. All of the changes impact after-tax income only, so are secondary to the purpose of the simulator.

Tags: updates

Inflation update

Wednesday, 5 June 2019

Today, ASIC released regulations that allow super and retirement calculators to allow for increases in community living standards. Our previous post on this topic noted that ASIC had mandated using a 2.5% p.a. discount rate to convert future dollars to today's dollars, with a time-limited exemption for super and retirement calculators. Since then the exemption was extended twice, but we now have certainty about how we present today's dollar amounts.

We allow our clients to use inflation rates that are consistent with the default investment returns. The additional factor over price inflation that allows for increases in community living standards is usually between 1% and 1.5%.

No changes are required for the Retirement Income Simulator because it already allows for increases in community living standards, and discloses this.

Tags: inflation assumptions regulation