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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 December 2016

Today we released an update that allows for the Budget legislation passed late November. In particular:

  • The reduction in concessional and non-concessional caps to $25,000 and $100,000 respectively
  • The reduction in the threshold for higher contributions tax to $250,000
  • Restricting after-tax (non-concessional) contributions once super balance exceeds $1.6m
  • The re-instatement of the LISC – now called Low Income Superannuation Tax Offset (LISTO)

We have applied these measures from this release (even though they are effective 1 July 2017) as these will be the conditions under which most users will be planning for retirement.

Note the $1.6m transfer balance cap limiting the amount able to be transferred to an account based pension is more complex and will be included in the near future.

Tags: updates budget 2016

Inflation update

In earlier posts we discussed ASIC's pending requirement to discount all future values at 2.5% pa. Recently, an amendment to this regulation was released, exempting superannuation and retirement calculators from this requirement until July 2018. Our hope is that ASIC will use this extension to come up with a solution that provides both a level of standardisation between calculators, as well as an allowance for improvements in living standards.

In the meantime, we have developed a new feature that allows the user to control the improvement in living standards as well as the level of price inflation. Look for the Change inflation rates control on the Assumptions panel.

Tags: inflation ASIC regulation

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

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Posts by Quarter

2020 q3

Calculator update 1 July 2020

2020 q2

Making the simulator more accessible
Two new RIS features

2019 q3

Deeming rate changes July 2019
Calculator update July 2019

2019 q2

Inflation update
Home loan feature

2017 q3

New enhancement for the self-employed
Calculator update July 2017

2017 q1

Calculator Updates for March 2017

2016 q4

Calculator Updates for December 2016
Inflation update
Calculator updates for October 2016

2016 q3

Modelling inflation in the simulator
Calculator updates for July 2016

2016 q2

Federal Budget 2016
Calculator updates for April 2016

2016 q1

Career changes in the Retirement Income Simulator
Changes to online calculator regulations

2015 q4

Calculator updates for December 2015
Alternative input methods for the Retirement Income Simulator
Retirement Income Simulator improvements for the retirement phase

2015 q3

Age Pension and ASFA Retirement Standard changes
How much super do you need?
Calculator Updates for July 2015

2015 q2

Congratulations to Media Super
Infographics for simplified retirement planning
Retirement Income Simulator gets a responsive redesign