Banking Review

Super calculators not so super

The introduction of Choice of Fund in 2005 and recent legislative changes have heralded many changes in the highly competitive superannuation market.

Funds now actively compete for new customers and the online channel has emerged as a critical component of customer acquisition strategies. Fund websites are used by current and potential customers to research and understand superannuation, retirement and financial planning.

One of common elements used to demonstrate the value of a Fund and its services is the superannuation calculator. Online calculators have become very popular with customers as they allow them to try scenarios and gain an understanding of options and variants.

However this self-education process is different from other financial services products. Most customers are familiar with home loan calculators that provide indicative results for repayments, loan amounts and fees and charges. Most home loan providers offer similar calculators, with many using rebranded calculators provided by InfoChoice. By default, these calculators have become a pseudo-standard.

On the contrary superannuation calculators provided by financial institutions vary widely in their function, purpose and assumptions. The degree in variations in superannuation calculators has been highlighted by Rice Warner Actuaries.

In reviewing the calculators of 79 funds, Rice Warner found that not all were up to date with current legislation. Several did not conform to ASIC requirements including not allowing the customer to change default values.

However it is the assumptions and methodologies used by different calculators that proved to be the most dramatic. Some calculators do not factor in fund balance erosion by inflation over time. Some express the results in ‘actual dollars’ rather than ‘today’s dollar value’. Others factor in administration fees, charges and insurance costs.

All of these factors influences the results provided by the calculators. In one scenario the projections varied from as much as $250,000 in today’s dollar value to $1,250,000 in actual dollars.

Are online superannuation calculators causing more confusion than benefit to customers?