Superannuation funds should include member benefit projections in annual member statements to help members track their progress towards their retirement savings goals and encourage voluntary super contributions, according to a new survey conducted by the Institute of Actuaries of Australia. Respondents agreed that projections should include Age Pension entitlements and should show both a lump sum and an annual income estimate at retirement. Survey results will be revealed at the Institute’s Super Policy Forum in Melbourne today.
Of the survey respondents (comprising super fund CEOs, senior management and actuaries), approximately 80% agreed that superannuation funds should include member projections in annual member statements. A further 85% agreed projections would have the effect of increasing voluntary superannuation contributions, as members could see how they were tracking and respond accordingly.
Melinda Howes, CEO of the Institute of Actuaries, said she was encouraged by the Institute survey results which indicated broad agreement on the idea of standardised projections.
“Superannuation benefit projections, if done properly, have the potential to provide meaningful benefit to super fund members by allowing them to track their progress towards their retirement goals, and to encourage them to make added voluntary contributions where appropriate,” said Ms Howes.
“The Institute of Actuaries survey shows that among the best ways to produce meaningful projections is to have standardised assumptions, to include both a lump sum and annual income estimate, and to include Age Pension entitlements.”
Three quarters of respondents believed that a projected retirement benefit for a member should be shown as a lump sum amount with a corresponding annual income amount. And, more than half (62%) of respondents also believed the superannuation benefit projection calculations should include Aged Pension entitlements.
“With 75% of the population expected to receive a full or part Age Pension, the Institute of Actuaries believes member projections should allow for the estimated pension amounts to give people a better idea of their standard of living in retirement,” Ms Howes said.
On how to calculate investment returns, an overwhelming majority of respondents (91%) said assumptions for these should be standardised across the industry. Interestingly when it came to setting fee assumptions, slightly more than half the survey respondents (55%) believed fees should be specific to the super fund, rather than a standardised fee assumption.
Some 60% of respondents agreed that a projection should be provided to individual members based on the investment strategy that they have chosen such as conservative, balanced or growth. Projections should also show a range of outcomes for different investment options or different contribution rates (68%). Respondents who disagreed with the extra detail believed keeping the projection as simple as possible was the best way to go.
“There is a need to balance the amount of information provided in a superannuation benefit projection with the goal of providing a useful tool for members. Make it too simple and the projection may be inaccurate or misleading. Make it too complex and people may throw it in the too hard basket and not even read the projections,” Ms Howes said.
“Most of the industry agrees that projection statements can be a good thing. The form that these should take and how they are calculated is a matter for debate but the most important factor should be that it helps people save for retirement,” she concluded.