Retirement case study assumptions

Industry Super Australia (ISA) has commissioned the ratings, research and consultancy company SuperRatings to undertake research and modelling on behalf of First Super. Unlike the Accumulation Net Benefit model, which looks at the growth 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.

Consistent with the Accumulation Net Benefit model, this Pension Net Benefit Model relies on SuperRatings’ analysis of investment returns, fees and the relative benefits offered to members during the pension phase. Considering 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 2023.

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 2018 and finishing on 30 June 2023.

Sample Set

As at 30 June 2023, the number of retail super options included in the sample set is:

Timeframe	1 year	3 years	5 years	7 years	10 years
Retail super options	27	25	23	18	15

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 options is similarly calculated by taking the average of all net benefit outcomes at the end of the comparison period for the funds included in 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.

Insurance

No deductions are made for insurance premiums.

Modelling was performed on 6 October 2023 using data as at 30 June 2023.