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Keep up-to-date with the latest improvements to all of our Retirement Income Simulator products

Retirement Income Simulator

Calculator updates for October 2016

A couple of parameter updates have been released for Australia:

  • The current Age Pension rates increased from 20 September, which bring annual homeowner rates to $22,805 (single) and $34,382 (couple)
  • The 37% personal income tax threshold increased from $80,000 to $87,000 as announced in the Budget

The rest of the Budget 2016 legislation is still being drafted and it could be a few months until it passes. We’ll keep our clients informed.

In the latest release, we have also moved the chart options from the View menu to below the chart to give them some more visibility.

We recently welcomed Westpac NZ Staff Scheme as a RIS client and will shortly launch a RIS for Goldman Sachs and JBWere Superannuation Fund.

Tags: updates age-pension income-tax budget design

Modelling inflation in the simulator

For our Australian clients:

In my January post I referred to a change in the regulation of calculators such as the Retirement Income Simulator. The consultation came and went and ASIC delivered a largely unchanged set of regulations. Except for one thing.

We all know that future dollars are not worth the same as current dollars, that is they don’t buy as much. People familiar with projection calculators will know that to get from future dollars (your super at retirement for instance) to current dollars you need to take out the effect of inflation between now and then. And for the purposes of modelling super, we assume inflation is a level rate.

But there are different measures of inflation. The rate most calculators use is based on wage inflation, which is generally higher than price inflation. The difference between wage and price inflation is often referred to as the improvement in standards of living. So if your salary goes up 3.5% and prices have gone up 2.5%, you can afford 1% more (or better) goods than you could last year – an improvement in your living standard. By discounting with wage inflation the Simulator applies a ‘tougher’ standard to your retirement savings, by measuring the value of your super against your future standard of living and in proportion to your future salary.

Now ASIC has stipulated that from 1 April 2017, all generic calculators (such as the RIS) must show future values discounted at price inflation at all times, and has set price inflation at 2.5%. This means that our default wage-based discounting will no longer comply and there is no allowance for improvements in living standards factored in. It also means that if the user changes the inflation rate to some other value, we still need to show the 2.5% discounted amount (as well).

ASIC recognises that there is value in allowing consumers to model improvements in living standards, and its regulatory guide on the matter points out that the ASIC MoneySmart calculators allow you to do this. However the ASIC calculators do not (yet) comply with the requirement to show the 2.5% discounted value at all times. So there’s a bit wait-and-see around the industry to observe how ASIC will implement its own regulations. A contact has assured me ASIC will lead on this well ahead of April 2017.

We are currently working on a feature to allow the user to set the rate of improvement in living standards. Regardless of what ASIC does, we will take whatever action is necessary to ensure that the Retirement Income Simulator continues to comply with regulations.

Tags: retirement-planning asic regulation

Calculator updates for July 2016

Today we released the updated Retirement Income Simulator for the 2016-17 financial year. There were no changes to the calculations, just parameter updates as follows:

  • Co-contribution eligibility income threshold
  • SG maximum contributions base
  • Age pension income test and deeming thresholds
  • March quarter 2016 ASFA Comfortable retirement standard

Depending on the outcome of the election and how far the Coalition super package gets, we may need another legislation-driven release in the next few months.

The one other thing we changed in this release was the living standards improvement margin. This is the amount added to price inflation to give:

  • an estimate of wage growth, and
  • the rate at which we discount future dollars to today’s dollars

We have reduced this margin to 1%, so that our long-term estimate of community wage growth is now 3.5% p.a. This is consistent with Mercer Investment Consulting research into wage expectations. The visible outcome of this change in the RIS is that estimates of future super amounts are now higher in today’s dollars than they were before. In recent times our expectations of investment returns have been falling as well; this change brings wage growth into line with expected returns.

Tags: retirement-planning updates inflation

Federal Budget 2016

There was a lot in the Federal Budget about super. In case you haven’t seen it, here’s Mercer’s analysis.

Our Apps Team is frequently in a limbo between policy announcements and what has actually been legislated, and we rarely include any policy measure in the simulator if it has not been legislated. In this case however, the changes are so broad that we have done a special Budget Edition simulator to help you see the impact on your super of some of the measures announced in the Budget. Using the scenario feature in the RIS we have considered the following measures:

  • Continuing the operation of the Low Income Superannuation Contribution;
  • Reducing the concessional contributions cap to $25,000;
  • Reducing the income threshold at which the additional 15 per cent tax on concessional contributions applies to $250,000;
  • Limiting non-concessional contributions across the lifetime to $500,000; and,
  • Capping the amount of superannuation savings that can be converted into a retirement income stream at $1.6 million, indexed with price inflation.

The simulator uses the Summary -> Compare screen to show which Budget measures might affect your situation.

Other Budget measures we have not included relate to the incentives for spouse contributions, the ability to make deductible contributions independent of salary, the restrictions on transition to retirement income streams and the carry-over of unused concessional caps for five years.

We hope you find it useful. The link is: https://supercalcs.com.au/ris9budget

Tags: retirement-planning budget

Calculator updates for April 2016

Today’s release includes:

  • Updating the maximum age pension rate increase effective 20 March
  • Updating the ASFA comfortable amounts reflecting the December quarter 2015

With January’s release we mentioned that the regulation applying to online calculators was being replaced. Instead of Class Order 05/1122, which expired 1 April 2016, ASIC has released Corporations (Generic Calculators) Instrument 2016/207, which we nickname CI207. What has changed? Not much.

  • The disclosure justifying the default assumptions as reasonable no longer has to be clear and prominent
  • Any amounts projected more than two years into the future must be shown as present values

We’re also working on an application to give users advice on their retirement (robo-adviser). Here’s a sneak peek. If you’re wondering where robo-advice fits in with calculators and advisers, try this automotive analogy.

Older cars don’t do much for you, you have to change gear, wind the windows and remember to turn the lights off. Newer cars have auto-transmission/lights/wipers, lots of safety features and even navigation screens. These cars represent different online calculators on the web, which will help you get to your destination, a retirement plan. But with all of them, you’re still the driver, you decide where you want to go and how you get there.

Now if you can’t drive or don’t know the roads, you need advice on where to go and how to get there; you need a driver. If you call an advice helpline, you’re catching a taxi. If you hire a financial adviser, you’re employing a chauffeur.

Think of robo-advice as the driverless car option. You say where you want to go, and the car gets you there. If you have lots of luggage, are starting in the bush or need to go via multiple waypoints, the car might decline. If you’re on a well-travelled road, the driverless car will give you the best ride every time.

ASIC is now consulting the public on digital financial advice, and looking for comments on proposals to require minimum competence standards for licensees, and guidance for monitoring and testing of algorithms.

Tags: retirement-planning age-pension asfa-comfortable-standard robo-advice

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