ASIC’s updated guidance and relief in respect of Superannuation Calculators and Retirement Estimates represents a fantastic opportunity for funds to provide a much-improved member experience when communicating expected outcomes.
Funds can now ensure that the output from their superannuation calculator is consistent with the retirement estimate included in members’ annual statements. However, with less than five months of the transition period remaining, funds will need to act fast to ensure that they comply with the new rules and remain eligible for the relief.
Background
Following a round of industry consultation in early 2022, ASIC recently released the following updated guidance and relief:
- ASIC Corporations (Superannuation Calculators and Retirement Estimates) Instrument 2022/603 (the instrument)
- Regulatory Guide 276 Superannuation Forecasts: Calculators and retirement estimates (RG 276).
The new rules came into effect from 1 July 2022. However, the transition period requires all providers to adopt the new rules by no later than 31 December this year if they wish to continue to rely on the relief provided in the instrument.
Bridging the gap
Under the previous rules, providers had the ability to issue retirement estimates to members via periodic member statements as well as offering digital calculators/tools.
The major challenge was that the assumptions and calculation approach for retirement estimates was prescribed and would not necessarily be consistent (or appropriate) for use in superannuation calculators. This left many providers in the uncomfortable position of having to explain to members the sometimes significant differences between the two seemingly similar projections. It is also for this reason that many providers chose to only offer calculators to members and not provide retirement estimates in periodic member statements.
Under the new rules, ASIC has attempted to bridge the gap between retirement estimates and superannuation calculators. We now have three distinct items defined in the instrument with largely uniform rules applying to each.
Static Retirement Estimates
- Issued on Periodic Member Statements
- Uses the member’s account data as held by the provider
- Shows projected retirement balance and retirement income
- Can conclude the Age pension
Interactive Retirement Estimates
- Members access from within the provider’s online portal
- Uses the member’s actual account data as held by the provider
- Shows projected retirement balance and retirement income
- Can include the Age pension
- Members can update/change various assumptions and inputs
Superannuation calculators
- Accessed via provider’s website or within online portal
- Members must input their data or consent to the use of information the provider knows about the member
- Can be used to provide any calculation relating to a superannuation product
- Members can update/change all non-statutory assumptions and inputs
Importantly, the previous prescription of assumptions, calculations and disclosure text that applied to retirement estimates have been removed and replaced with a principles-based approach. The rules now require the use of ‘reasonable’ assumptions, consistent calculation methodologies and clear disclosures across the spectrum of retirement estimates and superannuation calculators.
Providers will now be able to create a connected member experience that transitions from static to interactive retirement estimate to superannuation calculators without fundamental changes in methodology and/or assumptions.
Changes to retirement estimates
- Ability to provide interactive retirement estimates via an online portal. Unlike static retirement estimates, these can now be provided to members holding retirement phase products.
- Prescription of a retirement age and drawdown period that must be used by default.
- Assumptions (e.g. investment returns, inflation, wage growth, fees, premiums, etc) must now be ‘reasonable’ for the purpose and be reviewed at least annually.
- An estimate may not specify other amounts or results representing the member’s expected retirement benefit or retirement income, other than for the purpose of illustrating a numerical confidence level or interval of the projected result (i.e. due to the uncertain nature of assumptions) in the case of interactive retirement estimates.
- There is no longer any prescribed disclosure wording, though there is a prescribed list of information that must be included such as the purpose and limitations of the calculator or estimate. Text will need to be drafted by each provider to describe the specific assumptions, methodology and limitations relevant to their members.
- Minor changes to the criteria that define eligibility to receive a retirement estimate, including the requirement that a member has made a contribution in the 16 months prior to the date of the estimate (previously this was 12 months), hold a balance of at least $6,000 and that a member does not hold a defined benefit interest or a transition to retirement income stream.
- Greater flexibility to adjust the contribution data used in the projection to avoid assuming ad-hoc contributions continue to be made into the future.
Changes to superannuation calculators
- Requirement to seek consent to use data the provider knows about the member.
- Prescription of a retirement age and drawdown period that must be used by default where relevant.
- Updates to default rates used to convert projected results to today’s dollar value for display purposes.
- A requirement to review assumptions at least annually to ensure they remain reasonable.
Transition
With less than five months remaining of the six-month transition timeline to implement the changes, providers of superannuation calculators and retirement estimates will need to be familiar with the new requirements and determine a plan of work to address the changes required. WTW can assist with all aspects of the review and development of superannuation calculators and retirement estimates.
