Retirement case study assumptions

Industry Super Australia (ISA) has commissioned SuperRatings Pty Ltd (SuperRatings) to undertake research and modelling on behalf of First Super. SuperRatings is a ratings, research and insights company that specialises in analysing superannuation funds, their investment, their fees and the relative benefits they offer to their members.

Unlike the Accumulation Net Benefit model, which looks at the accumulation in an individual’s benefit during a member’s contributory phase of their superannuation, the Pension Net Benefit model focuses on the drawdown phase of a member in retirement.

This Pension Net Benefit Model is based on SuperRatings’ analysis of investment returns, fees and the relative benefits offered to members during the pension phase. Analysing the variance in earnings and fees between First Super’s balanced pension product and a sample set of retail pension products, the model calculates the de-cumulation of a member’s benefit within the pension phase over a 5-year period to 30 June 2024.

For example, the 5-year timeframe tracks the de-cumulation of a member’s benefit utilising First Super’s pension product between ages 67-71, commencing from 1 July 2019 and finishing on 30 June 2024.

Sample Set

As at 30 June 2024, the number of retail super options included in the sample set as at each year:

Year	Retail super products	Year	Retail super products
2015	112	2021	136
2016	115	2022	87
2017	121	2023	75
2018	129	2024	68
2019	133

Information about the Pension Net Benefit Model

The model uses the ‘main Balanced option’, being the fund’s largest Pension Balanced option where 60% to 76% of the fund’s assets are invested in growth investments. This is generally the fund’s default option. Where a fund does not have a Balanced option, the option closest to SuperRatings’ benchmark range of 60% to 76% growth investments is used. This is done for each pension product provider in the sample set.
The model uses return and fee data that is submitted by funds to SuperRatings, made publicly available by funds or contained within formal fund disclosures as at 30 June each year.
Using the starting account balance, drawdowns, earnings and fees are calculated using 30 June data each year to derive the closing account balance at the end of each year.
The closing account balance from the previous year is then used to calculate monthly drawdowns, earnings and fees on the account in the following years. That process is repeated for each year of the comparison.
The net benefit for each product refers to the cumulative earnings less fees for the relevant comparison period.
The average net benefit of the retail super funds is calculated based on the average of all investment returns and fees across each year within the comparison period for the sample set.
The model assumes no additional withdrawals over the relevant comparison period.
The model will be updated annually with 30 June figures (available in approximately October each year).

Other Assumptions used for the Pension Net Benefit Model

Opening account balance

Each calculation timeframe assumes an opening account balance.

Investment Returns

Performance (Net Benefit) modelling is based on actual reported returns over the stated period.

When are investment returns credited to members’ accounts?

Investment returns are credited annually, however, the total investment return is adjusted to take into account monthly pension payments and fee deductions.

Pension drawdowns

Pension drawdowns are calculated utilising a drawdown level of 5% per annum (which is aligned with the minimum legislated drawdown level for a member aged 65 at the commencement of the pension) and are assumed to occur monthly.

When are fees assumed to be deducted?

Annually.

Fees

All fee information is taken from the sample funds’ Product Disclosure Statements or other formal disclosures at the end of each year in the calculation. Establishment fees, buy/sell spreads, entry fees, exit fees, additional adviser fees or any other fees charged are excluded from this model.