You’re thinking about your retirement and worried about whether you’ll have enough money to live the life you want, or perhaps you’re more worried about not having enough money to even live the life you don’t want!

Uncertainty can create a lot of stress, and doing some research (see article Retirement planning in six steps) can often allay many of your fears even if your financial situation is not as strong as you hoped.

I received an email from a reader researching his retirement options. He referred me to an article from the Melbourne Age What price comfort? The reader asked me the following:

“The Age article suggests only $500,000 (supplemented by Age Pension) is required by a couple for a comfortable retirement. Your numbers suggest more. Who’s right?”

The reader asks a very good question because you can have many answers to the ‘how much is enough?’ question.

For the benefit of other readers, I’ll first give the background to the question. The numbers he is referring to are those that appear in my article A comfortable retirement: How much super is enough?

Although my lump sum amounts may be slightly higher than those quoted in the Age article, my target incomes are higher as well. Note that I update the article above every few months with new figures based on revised income figures from the ASFA retirement standard, but the reader’s question remains relevant.

According to the ASFA Retirement Standard, a comfortable retirement for a couple is considered to be living on roughly $55,000 a year after tax.

The Age article is based on $50,000 a year rather than $55,000 but it’s still worthwhile working through the reasons why you hear different lump sum figures for the same annual retirement income. The Age article does suggest you may need $500,000 (supplemented by the Age Pension) for $50,000 a year, but the article also quotes $700,000 as a lump sum at retirement, which doesn’t include any Age Pension. Most of the discussion in the article centres on an adviser’s estimate of $550,000, although this same adviser believes individuals should save more than this to minimise the chances of suffering if the Age Pension rules change, or if $50,000 a year in retirement doesn’t meet a couple’s lifestyle needs.

Now, your question: Who is right? Annoyingly, I think every answer may be right.

If you’re eligible for a part Age Pension you need less money upon retirement for a certain lifestyle because the Age Pension is supplementing your income. If you’re not eligible for the Age Pension, then $895,000 can deliver you an income of $55,000 a year (according to the Money Smart retirement planning calculator) assuming it is in the super environment, and subject to specific assumptions. If you’re eligible for a part-Age Pension then, potentially, you may need $800,000 or so. The reason the lump sums are so similar is that at this level of income a single person can expect a minimal Age Pension.

As a couple, if you want an annual income of $55,000 in retirement (a ‘comfortable’ retirement), then, again you’re likely to need about $895,000 if you’re not eligible for the Age Pension. If you’re able to claim a part-Age Pension, then the lump sum needed drops to about $520,000 (or probably slightly more, depending on the value of the assets that you own). I explain these figures in the article A comfortable retirement: How much super is enough?

When it comes to retirement planning and working out lifestyle figures for the future, I suggest you use conservative figures (that is, larger lump sums) because any lump sum suggested by a commentator, expert or online calculator can change depending on how you plan to invest your savings, whether the income is indexed for inflation and what level of indexation. The proportion of Age Pension is also relevant, if applicable, and even what calculator that you use.

The assumptions I include when using ASIC’s MoneySmart retirement planner calculator and MoneySmart account-based pension planner are not the default assumptions of the calculator. I use an investment return of 7% after costs, and 3% indexation, and assume retirement at 65.

Note: The earlier you retire, the more money that you need.

Since the GFC, the risk of running out of money is becoming a big concern for retirees and prospective retirees. Over the next few months, SuperGuide will include resources on the website to help you work out your options if protecting your retirement income is one of your planning objectives.

Related posts:

1. THE SOAPBOX: Setting targets – how old school!
2. Setting a retirement target: Living on more than $55,000
3. Crunching the numbers: a $1 million retirement

So, the big question is: how much money do you really need for your retirement?

Lifestyle is a very personal thing —luxury living for one person is a modest existence for someone else. I don’t intend to suggest the exact lifestyle you must choose for your retirement years but I can offer you some guidance on the amount of money you need if you want to cover your basic living costs and support a hobby or active social life. For example, do you expect to take frequent holidays and are you planning to enjoy regular glasses of wine or beer?

Choosing a lifestyle is simple — you live the life you can afford. If you want a more salubrious lifestyle, you save more, earn more, win the lottery or inherit lots of money from a rich relative. The same philosophy applies to your retirement lifestyle.

Clearly, the one constant for every Australian in retirement is meeting basic living costs. Thanks to a groundbreaking study originally released in February 2004 and now updated every three months or so, I can tell you, with some authority, how much money you need to live on each year in retirement, depending on the lifestyle that you want to have. The study, known as the ‘ASFA Retirement Standard’, measures the cost of a modest or comfortable lifestyle in retirement, in dollar terms, and adjusts these costs quarterly in line with the cost of living.

The ASFA Retirement Standard study is groundbreaking because Australians now have a tangible savings target with a clear idea of what type of lifestyle that amount of money can give them in retirement.

In 2010, the ASFA Retirement Standard was revamped to “give Australians a more comprehensive picture of how much they need to spend to support their retirement lifestyle. The Standard has been revised to reflect changes in living standards, new expectations of retirees and their evolving spending patterns. In particular, the budgets for Communications, Health, Energy, Clothing, Household Goods and Services, Recreation and Transport have been updated” (extract from ASFA website). I explain these recent changes to the Standard later in this article.

The lifestyle costs in this article reflect the cost adjustments as at September 2011 (released on 15 November 2011).

Assuming you own your own home, you need the following amounts of money, after tax, to give a single person, or a couple, a basic, modest or comfortable lifestyle:

• Basic lifestyle (Age Pension only — $19,469 a year, or $29,354 for a couple, including pension supplement, as at 20 September 2011). The single Age Pension now represents 27.7 per cent of Male Total Average Weekly Earnings. Are you willing to live on 27.7 per cent of an average Australian’s income? Living solely on the Age Pension gives you a basic income and access to discounts on health services and energy costs. While this figure is an amount you can survive on, many Australians don’t expect to live within this level of income by choice. (The Age Pension is adjusted every six months, with next adjustment on 20 March 2012, and then 20 September 2012).
• Modest lifestyle ($21,957 a year, or $31,767 for a couple). Receiving an after-tax income that is slightly higher than the Age Pension obviously gives you a better lifestyle than living solely on social security, but you can only afford low-cost activities.
• Comfortable lifestyle ($40,412 a year, or $55,316 for a couple). Living on this level of after-tax income means you can enjoy more recreational activities. Also, you can afford to purchase private health insurance, higher quality household goods and travel regularly. Even so, a ‘comfortable’ lifestyle isn’t outlandish.

Note: If you take an income stream from a super fund or withdraw lump sums from the super system, you can expect to pay no tax on your income, provided you’re aged 60 or over (excepting some public servants, who may have to pay a small amount of tax). Even when you’re under the age of 60, with the help of good tax advice, you can earn the amounts necessary for a modest or comfortable lifestyle without paying a cent of tax.

What does a ‘comfortable’ lifestyle of just over $40,000 a year (for a single person), buy you that a ‘modest’ lifestyle (roughly $22,000 a year) can’t? According to the ASFA Retirement Standard, a comfortable lifestyle enables “an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.”

According to ASFA, the revised standard now takes into account additional expenditure in the following categories:

1. Communications. More retirees want a mobile phone and broadband internet connection. Changes were made to both the comfortable and modest budgets.
2. Private health insurance. The cost of private health cover is now included in both lifestyles, because most retirees have private health insurance.
3. Energy. Adjusted to reflect changing consumer patterns.
4. Clothing. Adjusted to reflect more diverse shopping patterns.
5. Household goods and services. This component now includes the cost of computer equipment upgrades, hairdressing and personal care items. The “comfortable” lifestyle includes air conditioning, home alarm, and regular pest inspections.
6. Recreation. This component has been revamped to include membership of social and sporting clubs, and the cost of eating out. The comfortable lifestyle allows for purchase of fishing gear or golf clubs.
7. Transport. Adjusted to reflect the increased cost of owning and running a car.

If you expect to live on more than the Age Pension ($19,469, or $29,354 for a couple, as at September 2011), you need to find the income from your super and non-super savings.

The table below lists the lump sum amounts that you need to invest on retirement to deliver a modest or comfortable lifestyle. The lump sums are based on the assumption that you retire at the age of 65. You’re going to need smaller lump sum amounts if you’re eligible for the Age Pension and, in many cases, assuming you structure your finances appropriately, you’re likely to be eligible for at least a part-Age Pension.

If you retire before Age Pension age, that is, 65 (if you’re a man), or at least 64 years (if you’re a woman, since January 2010 and increasing to 64.5 years for women from January 2012, and 65 years from 2014), then you need a bigger lump sum than those shown in the table below because you have to finance a longer life in retirement, and you’re not going to be eligible to apply for an Age Pension until you reach Age Pension age.

Note: The Federal Government has flagged that the Age Pension age is set to increase from age 65 to age 67, effective from year 2023. If you were born before 1 July 1952, then your Age Pension age remains at 65 (or 64, 64.5 or 65 years, if you’re a woman). If you were born on or after 1 January 1957, then you don’t have access to the Age Pension until the age of 67. For those born after June 1952 and before January 1957, Age Pension age is either 65.5, 66 or 66.5 years. For more information see the article Take note: Age Pension age increasing to 67 years.

A popular question: What if a ‘comfortable’ life of just over $40,000 a year (for a single person) or just over $55,000 (for a couple) was not what you had in mind for your retirement. Perhaps you were expecting to enjoy an income of say, $100,000 a year. You can find out how much money you need for a $100,000-plus a year lifestyle in retirement in the article Setting a retirement target: Living on more than $55,000 a year.

Source: This article has been reproduced, with amendments and updated figures, from Trish Power’s books, DIY Super For Dummies (Wiley) ($39.95) and Superannuation: Planning Your Retirement For Dummies (Wiley) ($29.95) Reproduced with permission.

Related posts:

1. Setting a retirement target: Living on more than $55,000
2. Retirement planning in six steps
3. Crunching the numbers: a $1 million retirement

The most popular question about superannuation and retirement planning is, without doubt: How much money is enough?

A glib response to this question may be: Enough money for what? From the many times, though, that I’ve been asked this question, I know that when most Australians ask it, they really want to discover the answer to: How much money do I need to maintain (or improve) the lifestyle I currently have until the day I die? For some Australians, the question also includes: ‘And to leave enough money to help my family after I’ve gone’.

Many Australians believe that if you want to live on more than $55,000 a year then it will not be possible to claim government-funded Age Pension. Not so! Even when you own a lot of assets, you may still be entitled to a part Age Pension on retirement, or in the later years of your retirement. Continue reading to find out how much money you need to accumulate to finance a cushy lifestyle.

Wanting a cushy lifestyle

Your own answer to this question depends on four main factors:

• Level of income that you hope to receive each year, that is, your lifestyle expectations
• How long you expect to live, that is, your life expectancy
• Earnings you can expect to receive on your pension account in retirement
• Whether you intend to continue working and/or contributing to your super fund in retirement

In the SuperGuide.com.au article, A comfortable retirement: How much super is enough? I report on an excellent study that tracks the cost of living in retirement. The ASFA Retirement Standard indicates that you need just over $40,000 a year in income for a comfortable retirement, or just overy $55,000 a year as a couple. Alternatively, you can enjoy a modest lifestyle on an income of roughly $22,000 a year (or nearly $32,000 a year for a couple) with minimal savings, thanks to the Government-funded Age Pension.

Many people are relieved to finally know what target they need to be working towards in terms of retirement savings. A ‘comfortable’ lifestyle for some Australians isn’t what they had in mind. They were hoping for a ‘very comfortable’ life or even ‘lavish’ lifestyle when compared to the comfortable life that you can live on when receiving around $40,000 a year, or just over $55,000 as a couple.

If you fall into the ‘wanting more’ category then you’re probably seeking information on how much super is needed to finance much higher income levels.

The general rule when planning for retirement is: If you want a similar lifestyle to the one that you’re enjoying during your working life, you need a minimum of 60 to 65 per cent of your pre-retirement income in retirement. For example, if you live comfortably on $60,000 a year and you want a similar standard of living in retirement, you probably need an income of at least $36,000 to $39,000 a year. If your pre-retirement income is $120,000 and you want to maintain that lifestyle, then you probably need at least $72,000 to $78,000 a year.

Eligibility for Age Pension may still be possible

The table below lists the lump sum amount of money you need invested on retirement to finance an income stream at higher levels of income. The lump sum amounts shown in the table assume no Age Pension, but a couple seeking $50,000 or $55,000 a year is likely to secure a part-Age Pension. Couples hoping to live off $65,000 a year and even up to $90,000 a year, may be able to secure a small part Age Pension, which could reduce the retirement lump sum necessary.

A single person may be able to secure a part-Age Pension when seeking $50,000 a year income, but he or she is unlikely to receive a part-Age Pension at $55,000 a year and higher income levels due to the amount of assets necessary to finance such levels of income, although a part Age Pension is likely in the later years of retirement.

Eligibility for the Age Pension then means you need fewer savings in retirement. I discuss the Age Pension in more detail in other articles on the SuperGuide website, and in my books, Super Freedom (Wrightbooks) and  Superannuation: Planning Your Retirement For Dummies (Wiley).

Note: The longer you live, the more money you’re going to need. Alternatively, you can just accept a lower standard of living in retirement. On average, women need to save more because they live longer than men.

Source: This article is an updated extract from Trish Power’s book, DIY Super for Dummies (Wiley, $39.95). Reproduced with permission.

Related posts:

1. A comfortable retirement: How much super is enough?
2. Crunching the numbers: a $1 million retirement
3. Retirement: Why can’t $1 million last forever?

I understand I can apply for hardship, however it is such a tedious process. Is there a more simple way to access my super? It’s only worth around $90,000 in total.

I’m sorry to read about your financial situation, and your personal circumstances.

If you’re over the age of 55 (preservation age) and retire you can access your super benefits, subject to supplying a retirement declaration to your super fund.

The severe financial hardship rules require you to be on a social security benefit (you apply via your super fund). The ‘compassionate grounds’ rules for early release of super generally relate to mortgage stress or medical need.

An individual suffering mortgage stress may be able to access super benefits on compassionate grounds, subject to satisfying certain conditions.

In some circumstances, a medical condition may also warrant early release on compassionate grounds. You apply on compassionate grounds via the Department of Human Services and here is the link for further information on the Centrelink website (part of Department of Human Services).

I explain these rules in the following SuperGuide articles:

• Super for beginners, part 10: Can I use my super to reduce my mortgage?
• Accessing super early: Serious illness or surgery
• Accessing super early: Unemployed and in financial hardship
• Accessing super early: Not for business debts

It may also be possible to access super benefits due to permanent disability. You can access your preserved super if you become permanently incapacitated, that is, the trustee is satisfied that, due to ill health, you’re unlikely ever to be able to work in a job for which you’re qualified by education, training or experience. You will need to discuss this with your doctor and your super fund, to see if you satisfy the conditions.

You can access free financial counselling to help you manage your day-to-day finances from a financial counsellor. The Australian Securities and Investments Commission has a list of the main services across the country. Click here to access the list.

I hope things turn out okay for you.

Related posts:

1. Accessing super to be a carer and work part-time
2. Accessing super early on compassionate grounds
3. Accessing super early: Serious illness or surgery

Trish’s response: Many thanks for your words of support for SuperGuide. We believe there is a need for a free and independent site for consumers on superannuation, and the many emails that we receive and the exciting growth in the number of new and regular visitors to the website, has confirmed that a website such as SuperGuide is necessary.

SuperGuide provides independent information on superannuation for consumers. In keeping with the independence of the website, we do not operate a financial advisory business, and we do not recommend particular advisers or financial products or organisations. We do however operate the SuperGuide Directory which allows advisers and other super-related service providers to list for free, and serves as a starting point for our readers seeking expert assistance.

I cannot provide you with specific financial advice about your investment options, or whether AustralianSuper is a secure option, or whether there are better cash options available in the market place. What I can do is provide some general information for anyone hoping to compare their super fund’s investment returns with other super funds in the market.

Checking the reputation of a super fund

For example, if a reader is seeking information on whether a super fund is secure and strong you can visit the particular super fund’s site or phone the super fund and ask them this question. For an outsider’s view, many of the large super funds, including AustralianSuper, are reviewed by rating companies such as SuperRatings, SelectingSuper and ChantWest, which, depending on the rating a super fund receives, generally indicates the super fund is going to be around for awhile. You can visit any of these rating company websites to find out what ranking a super fund has received. I also provide a periodic summary of the top-performing super funds in the article Investment performance: We’re the best super fund. No we’re the best…

Reviewing a super fund’s investment performance

If you’re seeking information on assessing your fund’s investment performance, then you need to be mindful of at least three factors that determine a fund’s investment performance – asset allocation, level of fees (after tax) and quality of investment management over the longer term. For example, a cash option is going to deliver a lower return over the longer term than shares or property, even though for the previous two years or so, cash was king.

You can find out the performance of AustralianSuper’s cash option, and other investment options on its website (www.australiansuper.com) and the performance history page is here. This particular page on the website may be a useful reference for anyone interested in comparing the returns of super funds because along with the specific returns delivered by AustralianSuper, at the bottom of the webpage you can click on a spreadsheet that provides the benchmark returns for the different investment options, which you can measure against your own fund’s returns. Many super funds present the investment performance data in a similar format.

You may also be interested in some of the following free or low-cost information services.

1. Check out APRA whole-of-fund performance tables. The Australian Prudential Regulation Authority releases league tables listing the investment performance of the 200 largest APRA-regulated super funds. Note that the APRA tables don’t report investments returns on pension accounts (see Point 4), or returns on the different investment options available within a super fund. Find out more about the APRA tables by reading the SuperGuide article Exposing the performance history of Australia’s largest 200 super funds or access the APRA tables directly by clicking here.
2. Follow the daily newspapers. Monthly, or quarterly, many of the major daily newspapers publish tables containing the top performing super funds and what the benchmark returns are for the different investment options. If your fund is missing from the top 10 or 20, that doesn’t necessarily mean your super fund is a dud performer because often the periodic tables are measuring the top performer for that month, or that quarter. What matters is whether a super fund is delivering a strong return over a long period of time. Some of the daily newspapers (usually on a Wednesday) also provide data on many of the retail superannuation funds. Retail super funds are generally offered by banks and other similar financial organisations.
3. Ask your super fund for advice. In July 2009, the Australian Securities and Investments Commission (ASIC) announced that super funds can now provide a limited form of financial advice to its fund members, provided the super fund holds an Australian Financial Services licence. The motivation for introducing this cheaper advice service is to give Australians some guidance when making decisions about increasing super contributions, changing investment options, or taking out life insurance within a person’s existing super fund. This cheaper advice option does not allow your super fund to give you more complex retirement planning advice, or to give advice about switching funds. The new option is explained in my interview with ASIC’s former head of superannuation, the chief architect of this new low-cost advice concept, and what it means for consumers, in THE SOAPBOX EXCLUSIVE: Cheap financial advice now available – what does it mean for consumers? Many super funds are now offering intra-fund advice, and in many cases this advice is provided free of charge. Ask your super fund what they can offer you in terms of intra-fund advice.
4. Check out ratings companies. SelectingSuper, ChantWest and SuperRatings provide a consumer service rating funds on different levels. You can compare one or two funds against your existing super fund for a fee. For no cost, you can check out the ratings for most of the large super funds available in the marketplace. SelectingSuper also provides free information on the top-performing pension funds.

Comparing funds: You can find more information on comparing super funds in the special section on the topic by clicking on the tab at the top of this website or by clicking here: ‘comparing funds’.

Financial advice: You can find more information on financial advice, and finding an independent adviser by typing in ‘financial advice’ in our search function at the top right-hand side of SuperGuide website.

Related posts:

1. Investment performance: We’re the best super fund. No, we’re the best…
2. Super for beginners, part 20: Comparing your super fund’s performance
3. Exposing the performance history of Australia’s largest 200 super funds

Some of the most important questions you need to ask when planning for your retirement are:

• What type of lifestyle do you want?
• How long do you want this lifestyle?
• How much money do you have?
• What investment return are you hoping to achieve on your savings in retirement?
• Do you want to leave any money to your children?
• Is there a gap between your expectations and what you hope to achieve financially for your retirement?

In August 2011, I published two articles on the SuperGuide website outlining what $1 million can deliver you in retirement, and what $2 million can provide in retirement. The two articles have been the most popular articles on the SuperGuide website this year, and consequently I received many emails challenging the fact that $1 million could run out when earning 7% after fees in a tax-free environment, and when receiving a certain level of income. We have updated these articles with an explanation of today’s dollars (the links for the two updated feature articles are at the end of this article).

In collating the figures for the two features, I relied upon the Australian Securities & Investments Commission’s MoneySmart retirement planner calculator. For an official response, I forwarded a selection of reader questions (just the questions not the actual emails) to the creators of the MoneySmart calculator. They provided explanations for why a $1 million retirement can still mean that you eat into your capital and eventually run out of savings.

Three popular questions from readers

Three questions from readers, and ASIC’s response to those questions, are set out below:

1.     Reader question: Can you please explain to me how the million dollar super ever runs out? My thoughts are, if you have a million dollars in Super and it returns 7% then you acquire $70,000 a year. This is just spending what your fund earns, not the one million dollars as a principal sum, so why does it ever run out?

ASIC’s response:  The MoneySmart Retirement Planner works in “today’s dollars”. So if we assume an inflation rate of 3%, the calculator also increases your drawdowns by 3% each year in order to maintain a similar lifestyle. This means that a $70,000 withdrawal per year would partially dip into your capital after year 1. Or, expressed another way, a notional return of 7% is equal to a real return (after inflation) of 4%. If you only withdrew 4%, it would last forever.

2.     Reader question: I just don’t get it. If I have $2mil @ 7%, I generate $140,000 pa so how can my super run out at 87 or 100 if I only withdraw $100,000 pa? Will my super not keep growing? Or is it to do with the aged-based minimum withdrawal increases?

ASIC’s response: If we assume an inflation rate of 3% we also assume that you will increase your drawdowns by 3% each year in order to maintain a similar lifestyle. In effect, your real returns are only 4% each year. This means that you would start to dip into your capital after year 1. You earn 4% in real terms but are taking out 7%. If you start at age 65 with $2 million and draw $100,000 income per year (indexed to inflation) your funds are estimated to last until age 97.

3.     Reader question: I wanted to ask about your statement in this paper [in the introduction of $1 million retirement article] to the effect that a “lump sum of $480,000 can deliver a couple nearly $55,000 (indexed) a year in retirement (which includes the couple’s Age Pension entitlements) until the age of 87″. Using an Age Pension calculator, I get a figure of approx $20,000 per annum from the Age Pension (for a couple). That leaves about $35,000 per annum to make up. Trouble is, according to my calculations anyway, with a super balance of only $480000, I can’t see a way to generate $35,000 for 22 years, even if invested at 7%, especially if we insist on indexing it at 3%. Have I missed something?”

ASIC’s response: On an account balance of $480,000, the MoneySmart Retirement Planner estimates the income (age pension + super) to be $53,600. Using the account-based pension calculator to double-check figures, at 7% return after fees and 3% inflation, the allocated pension account can be expected to deliver an income of $33,600 for 22 years.

Trish’s note: SuperGuide’s calculations also assume no lump sum expenditure in the first year from the account balance.

Indexing your income protects your lifestyle

I also want to explain the how inflation (cost of living) and indexation (the modelling tool to combat inflation) translates into the concepts of ‘today’s dollars’ and ‘tomorrow’s dollars’.

The term, ‘today’s dollars’, is confusing especially when you’re looking up to 20 or 30 years into the future. Translating your tomorrow dollars into today’s dollars enables you to plan for the type of lifestyle that you want in retirement. If you use tomorrow dollars, they will be relatively meaningless when looking many years ahead.

Using an example, say you want to live on $50,000 a year in retirement and you plan to retire today. When you think of $50,000 a year I assume you’re imagining what $50,000 can buy you today and that’s the lifestyle you’re aspiring to. Cost of living increases are a fact of life nowadays so if you want to maintain the lifestyle that you can expect on $50,000 in today’s dollars, then you will need to increase your annual retirement income each year to maintain your lifestyle of today. If prices increase by 10% over the next three years, then in three years’ time you will need to be taking a retirement income of $55,000 a year, to match your lifestyle on $50,000 a year in today’s dollars. If prices increase by 20% over the next six years, then in six years’ time, then you will need to be taking a retirement income of $60,000 to match your current lifestyle on $50,000 a year.

The $1 million and $2 million features referred to in this article (see links at the end of this article) allow for 3% inflation when working out annual incomes, so the figures in these features automatically allow for the annual adjustment in retirement incomes.

Comparing today’s dollars with tomorrow’s dollars

For those readers who are still sceptical about how $1 million, or even $2 million, can run out at certain levels of income, here’s another scenario.

Using the ‘single person, age 65’ figures from the table in the article ‘Crunching the numbers: A $1 million retirement’, Beverley, age 65, retires today with $1 million. If she wants her money to last until she turns 100, and if she wants to maintain the lifestyle that she enjoys in her first year of retirement, then she can expect an income of $53,500 in the first year, and that income will be indexed each year by 3%, and she will run out of savings at the age of 100. In today’s dollars, Beverley’s annual retirement income for each year works out to be $53,500 a year (although significantly more in tomorrow’s dollars).

Beverley’s friends think that she is being ripped off by these estimates. The friends work out that if you stick $1 million in the bank and in shares within her super fund, and the super fund receives bank interest and dividends and other income, at 7% a year (no fees or taxes), then Beverley’s money should never run out if she only takes out $53,500 a year. In fact, her savings should be growing not diminishing. Earning 7% on $1 million each year works out to be $70,000, and this figure should grow as she accumulates more retained earnings. What’s the story?

The story is reasonably straightforward: If Beverley wants her lifestyle to be maintained, then taking out only $53,500 in 10 or 20 years time will not deliver her the lifestyle she wants. If Beverley withdraws $53,500 in absolute terms, that is, in tomorrow’s dollars, each year, then she will certainly retain her capital for longer, but her standard of living will dramatically decline in real terms, that is, in today’s dollars.

In 20 years time, Beverley’s lifestyle will have nearly halved in real terms, if she continues to take the same dollar amount that she first withdrew 20 years earlier.

I have used ASIC’s MoneySmart account-based pension calculator to calculate the income she needs to withdraw from your super pension each year in tomorrow’s dollars, to maintain today’s lifestyle of $53,500 (see table below), assuming 3% indexation/inflation. You can also do these calculations manually by multiplying $53,500 by 1.03%, and then multiplying that result ($55,105) by 1.03%, and continuing these calculations each year on the revised income in tomorrow’s dollars.

Note: In practical terms, if Beverley accepted that she was willing to have a lower standard of living as she got older, by taking out the same amount every year (without indexation) until age 87, then she could enjoy a higher standard of living in her earlier years (and higher income than $53,500 in tomorrow’s dollars) and cop the fall in lifestyle later.

Source: Incomes in tomorrow’s dollars (using 3% indexation) verified used ASIC’s account-based pension calculator and referring to the ‘Pension 1’ tab in the calculator.

Due to popular demand, we have created a 2-part special on what a $1 million lump sum can deliver you in retirement, and what a $2 million lump sum can give you as a single person, or a couple, and whether you retire at 55, or at 61 or 65. Click on the article links below:

• Crunching the numbers: a $1 million retirement
• Crunching the numbers: a $2 million retirement

Related posts:

1. Crunching the numbers: a $1 million retirement
2. Crunching the numbers: a $2 million retirement
3. Setting a retirement target: Living on more than $55,000

The majority of Australians will need nowhere near $2 million in today’s dollars to have a comfortable retirement, but a significant minority of Australians are planning for (or at least hoping for) such a retirement lifestyle.

In this article, I will be doing the numbers for those wanting a particularly cushy retirement and who are aiming to have an enticing $2 million in retirement. I have chosen $2 million because the ASIC MoneySmart retirement planner calculator allows for lump sums of up to $2 million.

Note: I also do the numbers for those readers who aspire to a $1 million retirement in the article Crunching the numbers: $1 million retirement.

Continue reading to find out what $2 million in today’s dollars can deliver you if you want your lifestyle to last until the age of 87 (average life expectancy for a 65-year-old woman, while average life expectancy for a 65-year-old man is 83.5 years), or until the age of 100, or somewhere in between. I provide figures for a single person or a couple, and where relevant, I include any Age Pension entitlements.

If $1 million or $2 million in retirement is beyond your wildest dreams then check out my other SuperGuide articles dealing with the topic of how much super is enough. Even when you have a small amount of super savings, you may be pleasantly surprised by what your retirement savings can deliver, especially if you’re entitled to a full or part Age Pension.

For example, a humble lump sum of $42,000 can deliver a couple a retirement income of more than $30,000 a year (when taking into account the couple’s full Age Pension entitlements). A lump sum of $480,000 can deliver a couple nearly $55,000 (indexed) a year in retirement (including the couple’s Age Pension entitlements) until the age of 87, and nearly $46,000 (indexed) a year until the age of 100, according to the ASIC MoneySmart Retirement Planner.

So, what can $2 million generate in terms of an annual tax-free income in retirement?

Note that with the halving of the concessional (before-tax) contributions caps, it is likely that you will need to kick in some non-concessional (after-tax) contributions to reach the magic $2 million in today’s dollars.

Assumptions: The amounts below assume that the money is retained in the super system and that you pay yourself a super pension (from a pension provider or from your self-managed super fund). By retaining your money in the super system, the earnings on your savings are exempt from tax, and the income payments that you receive from your super pension are tax-free.

The amounts quoted in this article were calculated with the ASIC MoneySmart Retirement Planner using the following assumptions:

• investment returns are 7 per cent after fees and taxes (that is, re-invested) on the account balance of a superannuation pension, which means the fees boxes are set at zero
• the investment return is set at moderate.
• Inflation and cost of living adjustments are set at 3 per cent rather than 3.5 per cent (which is the standard assumption)
• Money lasts until age 87, or age 100, or whatever age I specify in the text
• No money is spent in year one before commencing retirement income stream
• Individual retires at age 65, unless I specify otherwise in the text

Tip: If you’re aspiring to a $2 million retirement then it will be worthwhile having a chat with a financial adviser or an accountant about the most tax-effective, and ‘risk appropriate’ way to get there.

If you’re single and retire with $2 million

The scenarios for a single person are divided into three timeframes (also see table at end of article):

• Retiring at age 65
• Retiring at age 61
• Retiring at age 55

If you retire today, at the age of 65 with $2 million in super, as a single person, your savings can deliver you:

• a retirement income of $130,000(indexed) a year until the age of 87 (with no Age Pension entitlements until your money runs out from age 88)
  • $100,000 (indexed) a year until the age of 100 (and expect no Age Pension entitlements)

If you retire before the age of 65 but after the age of 60, you can still expect tax-free pension income and the issue of retiring before Age Pension age is irrelevant because your assets and income preclude you from claiming the Age Pension. For example, if you retire at age 61 with $2 million in super, as a single person, your savings can deliver you:

• A retirement income of $118,500 (indexed) a year until the age of 87 (with no Age Pension entitlements even after turning 65) — same income whether couple or single because no Age Pension involved.
• $97,000 (indexed) a year until the age of 100 (with no Age Pension entitlements even after turning 65)
• Nearly $101,000 (indexed) a year until the age of 97

If you want to retire before the age of 60, then you can expect to pay some tax on your pension income. For example, if you retire at age 55 with $2 million in super, as a single person, your savings can deliver you:

• A retirement income of $106,000 (indexed) a year until the age of 87 (with no Age Pension entitlements and potentially this income could be taxed until you reach the age of 60)
• $92,000 (indexed) a year until the age of 100 (with no Age Pension entitlements and income potentially taxed until the age of 60)
• Just over $100,000 (indexed) a year until the age of 91

Note: The $2 million scenarios referred to in this article allow for 3% inflation when working out annual incomes, so the figures in these features automatically allow for the annual adjustment in retirement incomes. For further explanation of why planning for retirement using today’s dollars is more helpful than retirement planning using tomorrow’s dollars, see article Retirement: Why can’t $1 million last forever?

If you’re partnered and retire with $2 million

Due to the more generous treatment of assets for a couple when determining eligibility for the Age Pension, a couple with $2 million in super on retirement may be eligible for a small part Age Pension in the later years of retirement.

The scenarios for a couple are divided into three timeframes (also see table at end of article):

• Retiring at age 65
• Retiring at age 61
• Retiring at age 55

If you retire today, at the age of 65 with $2 million in super, as a couple, your savings can deliver you:

• a retirement income of $130,000(indexed) a year until the age of 87 (with no Age Pension entitlements until your money runs out from age 88) — same income whether couple or single because no Age Pension involved.
  • Just under $103,000 (indexed) a year until the age of 100 (which includes a small part Age Pension from the age of 89).

If you retire before the age of 65 but after the age of 60, you can still expect tax-free pension income and the issue of retiring before Age Pension age is irrelevant in the early years of your retirement, as a couple, because your assets and income preclude you from claiming the Age Pension. For example, if you retire at age 61 with $2 million in super, as a couple, your savings can deliver you:

• A retirement income of $118,500 (indexed) a year until the age of 87 (with no Age Pension entitlements even after turning 65) — same income whether couple or single because no Age Pension involved.
• $97,500 (indexed) a year until the age of 100 (with a tiny Age Pension entitlement in your early nineties)
• Around $101,000 (indexed) a year until the age of 97 (with a tiny Age Pension entitlement from the age of 86 until age 90)

If you want to retire before the age of 60, then your super savings will have to finance a longer life in retirement, and you can expect to pay some tax on your pension income. For example, ignoring tax, if you retire at age 55 with $2 million in super, as a couple, your savings can deliver you:

• A retirement income of $106,000 (indexed) a year until the age of 87 (with no Age Pension entitlements and potentially this income could be taxed until you reach the age of 60) — same income whether couple or single because no Age Pension involved.
• $92,000 (indexed) a year until the age of 100 (with no Age Pension entitlements and income potentially taxed until the age of 60) – the calculator provides a figure that is the same as for a single person, but my rough estimates indicate that a couple would receive a small part Age Pension in the later years of retirement potentially nudging the annual income closer to $93,000.
• Just over $100,000 (indexed) a year until the age of 91 – note my comment in the previous bullet.

Note: The $2 million scenarios referred to in this article allow for 3% inflation when working out annual incomes, so the figures in these features automatically allow for the annual adjustment in retirement incomes. For further explanation of why planning for retirement using today’s dollars is more helpful than retirement planning using tomorrow’s dollars, see article Retirement: Why can’t $1 million last forever?

Note: See article text for assumptions. Figures calculated using ASIC MoneySmart retirement planner calculator (www.moneysmart.gov.au)

*Tax may be payable on income when retiring before the age of 60.

Related posts:

1. Crunching the numbers: a $1 million retirement
2. Retirement: Why can’t $1 million last forever?
3. Setting a retirement target: Living on more than $55,000

The majority of Australians will need nowhere near $1 million in today’s dollars to have a comfortable retirement, but an increasing number of Australians are planning for (or at least hoping for) such a retirement lifestyle. In this article, I will be doing the numbers for those who are aiming to have the magic $1 million in retirement.

Note: In a related article, I also crunch the numbers for those readers who aspire to a $2 million retirement (see article Crunching the numbers: a $2 million retirement).

Continue reading to find out what $1 million in today’s dollars can deliver you if you want your lifestyle to last until the age of 87 (average life expectancy for a 65-year-old woman, while average life expectancy for a 65-year-old man is 83.5 years), or until the age of 100, or somewhere in between. I provide figures for a single person or a couple, and where relevant, I include any Age Pension entitlements.

If $1 million or $2 million in retirement is beyond your wildest dreams then check out my other SuperGuide articles dealing with the topic of how much super is enough (see bottom of this article). Even when you have a small amount of super savings, you may be pleasantly surprised by what your retirement savings can deliver, especially if you’re entitled to a full or part Age Pension.

For example, a very achievable lump sum of $42,000 can deliver a couple a retirement income of more than $30,000 a year (when taking into account the couple’s full Age Pension entitlements). A lump sum of $480,000 can deliver a couple nearly $55,000 (indexed) a year in retirement (which includes the couple’s Age Pension entitlements) until the age of 87, and nearly $46,000 (indexed) a year until the age of 100, according to the ASIC MoneySmart Retirement Planner.

So, what can $1 million generate in terms of an annual tax-free income in retirement?

Assumptions: The amounts below assume that the money is retained in the super system and that you pay yourself a super pension (from a pension provider or from your self-managed super fund). By retaining your money in the super system, the earnings on your savings are exempt from tax, and the income payments that you receive from your super pension are tax-free.

The amounts quoted in this article were calculated with the ASIC MoneySmart Retirement Planner using the following assumptions:

• investment returns are 7 per cent after fees and taxes (that is, re-invested) on the account balance of a superannuation pension, which means the fees boxes are set at zero
• the investment return is set at moderate.
• Inflation and cost of living adjustments are set at 3 per cent rather than 3.5 per cent (which is the standard assumption)
• Money lasts until age 87, or age 100, or whatever age I specify in the text
• No money is spent in year one before commencing retirement income stream
• Individual retires at age 65, unless I specify otherwise in the text

Tip: If you’re aspiring to a $1 million retirement then it may be worthwhile having a chat with a financial adviser or an accountant about the most tax-effective, and ‘risk appropriate’ way to get there.

If you’re single and retire with $1 million

The scenarios for a single person are divided into three timeframes (also see table at end of article):

• Retiring at age 65
• Retiring at age 61
• Retiring at age 55

If you retire today, at the age of 65 with $1 million in super, as a single person, your savings can deliver you:

• a retirement income of $67,000 (indexed) a year until the age of 87 (which includes a part Age Pension from the age of 75)
• $53,500 (indexed) a year until the age of 100 which includes a part Age Pension from the age of 82)

If you retire before the age of 65 but after the age of 60, you can still expect tax-free pension income although you will only be able to claim the Age Pension (if eligible) when you reach Age Pension Age (currently age 65 and increasing to age 67). For example, if you retire at age 61 with $1 million in super, as a single person, your savings can deliver you:

• A retirement income of just under $61,000 (indexed) a year until the age of 87 (which includes a part Age Pension from the age of 71).
• $50,500 (indexed) a year until the age of 100 (which includes a part Age Pension entitlement from the age of 81)

If you want to retire before the age of 60, then you can expect to pay some tax on your pension income. For example, if you retire at age 55 with $1 million in super, as a single person, your savings can deliver you:

• A retirement income of $54,500 (indexed) a year until the age of 87 (which includes a part Age Pension from the age of 71).
• Just under $47,000 (indexed) a year until the age of 100 (which includes a part Age Pension from the age of 79).

Note: The $1 million scenarios referred to in this article allow for 3% inflation when working out annual incomes, so the figures in these features automatically allow for the annual adjustment in retirement incomes. For further explanation of why planning for retirement using today’s dollars is more helpful than retirement planning using tomorrow’s dollars, see article Retirement: Why can’t $1 million last forever?

If you’re partnered and retire with $1 million

Due to the more generous treatment of assets for a couple when determining eligibility for the Age Pension, a couple with $1 million in super on retirement will be eligible for a greater part Age Pension than a single person owning the same amount of assets.

The scenarios for a couple are divided into three timeframes (also see table at end of article):

• Retiring at age 65
• Retiring at age 61
• Retiring at age 55

If you retire today, at the age of 65 with $1 million in super, as a couple, your savings can deliver you:

• a retirement income of $76,000(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 66)
  • $62,500 (indexed) a year until the age of 100 (which includes a healthy part Age Pension from the age of 66).

If you retire before the age of 65 but after the age of 60, you can still expect tax-free pension income although you will only be able to claim the Age Pension (if eligible) when you reach Age Pension Age (currently age 65 and increasing to age 67). For example, if you retire at age 61 with $1 million in super, as a couple, your savings can deliver you:

• A retirement income of just under $70,000 (indexed) a year until the age of 87 (which includes a part Age Pension from the age of 66).
• $59,000 (indexed) a year until the age of 100 (including a part Age Pension from the age of 66).

If you want to retire before the age of 60, then your super savings will have to finance a longer life in retirement, and you can expect to pay some tax on your pension income. For example, ignoring tax, if you retire at age 55 with $1 million in super, as a couple, your savings can deliver you:

• A retirement income of just under $62,000 (indexed) a year until the age of 87 (which includes a part Age Pension from the age of 67).
• $55,000 (indexed) a year until the age of 100 (which includes part Age Pension entitlements from the age of 67).

Note: The $1 million scenarios referred to in this article allow for 3% inflation when working out annual incomes, so the figures in these features automatically allow for the annual adjustment in retirement incomes. For further explanation of why planning for retirement using today’s dollars is more helpful than retirement planning using tomorrow’s dollars, see article Retirement: Why can’t $1 million last forever?

Note: See article text for assumptions. Figures calculated using ASIC MoneySmart retirement planner calculator (www.moneysmart.gov.au)

*Tax may be payable on income when retiring before the age of 60.

Related posts:

1. Crunching the numbers: a $2 million retirement
2. Retirement: Why can’t $1 million last forever?
3. Setting a retirement target: Living on more than $55,000

A popular question from SuperGuide readers is: what is the best-performing super fund in Australia?

Using the term ‘best’ is dangerous in any field because it involves some level of personal judgement, and the answer can change frequently depending on what you’re measuring, and when you’re making the assessment, especially when we’re considering the current volatile markets. Usually, there are a bunch of top-performing super funds over time rather than one particular super fund.

The answer to this popular question also depends on what timeframe you’re looking at, what type of returns you’re comparing (after fees and taxes, or gross), and what type of investment option (or asset allocation) you have chosen for your super money.

A more relevant question is: what super fund is the most appropriate super fund (or investment option) for my retirement needs?

The original question then needs to be divided into two parts:

• how does the super world measure the best-performing super fund?
• how do you measure fund performance in relation to your own circumstances?

The first part of the question I answer in the article below, and the second part of the question I answer in another SuperGuide article Super for beginners, part 11: Is my super fund good enough?

The award for the best super fund, according to…

The following sections within this article list selected performance rankings from 4 organisations:

1. SuperRatings
2. SelectingSuper
3. Chant West
4. Australian Prudential Regulation Authority (APRA)

Every month, quarter or 12 months, you’re likely to read about the best-performing super funds, the best value super funds or the best super fund over the long term (‘long term’ meaning anything from 3, 5 7 or 10 years) in the daily newspapers, and also on SuperGuide.

Around 80% of all Australians with superannuation accounts have their money invested in the default investment option of super funds. The default investment option is usually a ‘balanced’ or a ‘growth’ investment option (typically 60 to 80% invested in growth assets such as shares and property). The lists that you see in the newspapers usually rank the ‘balanced’ or ‘growth’ investment options of super funds because that is where most Australians have their super money. Most of the lists in this article rank the ‘balanced’ or ‘growth’ options.

Note: According to SuperRatings, the median annual return for the default investment option for the four previous financial years were:

• 2010/2011 financial year: 8.7% (gain)
• 2009/2010 financial year: 9.8% (gain)
• 2008/2009 financial year: negative 12.7% (investment loss)
• 2007/2008 financial year: negative 6.4% (investment loss)

1. SuperRatings performance tables

When assessing the investment returns of super funds, the process is more effective if you have a benchmark available to compare how well the top super funds have performed against the average, and to compare the average and the top-performing funds, against your own super fund’s returns.

SuperRatings regularly provides median returns for the different asset allocations – High Growth, Growth, Balanced, Conservative Balanced, Capital Stable, Secure, Australian Shares, International Shares. The returns are based on the median returns of the largest 50 (SR50 Index) or largest 25 (SR25 Index) super funds under review by SuperRatings. A median is simply choosing the return for the fund in the middle of the list. According to SuperRatings, the SR50 Index and the SR25 Index are a “good guide to the actual return of the ‘average’ fund over the same time frames”.

Past performance is not a reliable indicator of future performance. Negative returns appear as follows: -3.2% means a loss of 3.2%

Source: SuperRatings. Visit the website for more information on the different indices.

SuperRatings –Top 10 ‘balanced’ super funds over 5 years

According to SuperRatings, the top 10 super funds based on the ‘balanced’ option (investment options with between 60% and 76% in growth-style assets) over the 5-year period ending 30 June 2011 are:

All results are net of fees and tax and are for the 5 years ended 30 June 2011. Past performance is not a reliable indicator of future performance. Negative returns appear as follows: -2.7% means a loss of 2.7%

**Interim results

Source: SuperRatings

Note: If you have actively chosen an investment option, then your super money may not be in a balanced investment option. You will need to do a little more research to uncover the performance data for super funds that have invested in a similar asset allocation to yourself.

SuperRatings provide performance data (free of charge) on super funds and pension funds. The latest reports cover performance over 1, 3, 5 and 7 years as at 30 June 2011, and SuperRatings updates these performance tables monthly. You can access the SuperRatings Super Performance List and the Pension Performance List by visiting the SuperRatings website.

2. SelectingSuper performance tables

SelectingSuper also produces benchmark indices that you can use to compare how well the top super funds have performed against the average, and to compare the average and the top-performing funds, against your own super fund’s returns. At the time of writing, the latest returns reported by SelectingSuper for the different asset allocations – 5 investment options and 8 asset classes – were as at 30 June 2011 click here.

SelectingSuper provides benchmark returns for both superannuation funds and retirement funds.

You can learn more about SelectingSuper’s top 50 default investment options (usually balanced or growth) over a 3-year period, as at 30 June 2011 by clicking here. Note that the actual ranking is based on the 3-year performance of the super funds listed, although you can track the performance of each of the 50 super options over 1, 3, 5, 7 or 10 years as well.

SelectingSuper provides the top 50 super funds for other investment options as well. Click here to access the SelectingSuper performance tables.

3. Chant West performance tables

Rating company, Chant West, produces slightly different benchmark indices compared with SelectingSuper and SuperRatings. Chant West provides benchmark median returns for five investment options -All Growth, High Growth, Growth, Balanced, Conservative.

Chant West – median performance for main investment options

Note: Table compares the median performance for each category in Chant West’s multi-manager performance survey, ranging from All Growth to Conservative. Performance is shown net of investment fees and tax. It does not include administration fees or adviser commissions. Negative returns appear as follows: -1.4% means a loss of 1.4%

Source: Chant West (www.chantwest.com.au)

4. APRA takes whole-of-fund approach

The performance tables issued by the Australian Prudential Regulation Authority (APRA) have had mixed reviews, with particular criticism coming from the retail fund sector. I believe the APRA tables are still an excellent resource for consumers (for background on the APRA tables and how you can best use the tables, refer to article Ten handy uses for the APRA 200 Performance list).

The latest APRA tables (released on 27 January 2011) summarise the performance of Australia’s 200 largest super funds for the 12 months ending 30 June 2010, for the 3-year period ending 30 June 2010, and for the 5-year and 7-year periods ending 30 June 2010, and for each of the previous seven years. The APRA tables also include super funds paying pensions.

You can check out the tables yourself by clicking on this link to access the Superannuation Fund-level Rates of Return publication. The next edition of this publication will be released in 2012.

Related posts:

1. Investment performance: Benchmarking super fund returns
2. Super for beginners, part 20: Comparing your super fund’s performance
3. Mirror, mirror… what super fund is the best-performing fund of all?

The returns quoted in the newspapers are ordinarily for a fund portfolio called the balanced investment option. A balanced investment option usually has 60% or more of the portfolio’s assets invested in assets such as shares, property and alternative investments. Although most super fund members have their super money invested in a balanced option (it may also be described as a ‘growth’ option), you may be one of the growing numbers of super fund members who exercise investment choice.

More than 80 per cent of superannuation funds offer investment choice, which ordinarily means they offer fund members the choice of various portfolios (a combination of several assets) rather than the choice of specific investments. For example, you may have the choice between conservative, balanced, growth and high growth portfolios. Some funds give you the opportunity to invest part or all of your superannuation money in one or more specific asset classes, such as international shares or property.

Around 80% of fund members have their super invested in the default option. The default option is used when members don’t exercise investment choice. The default investment option is usually a ‘balanced’ investment option (60% or more of assets in growth-style assets such as shares, property and alternative assets).

If your super fund doesn’t appear in any of the performance tables (see related article links at the end of this article) it doesn’t necessarily mean you’re a member of a dud fund. If you choose your own investment options, then you need to compare the performance of your chosen investment options against similar options in other funds, rather than the performance quoted for the default option.

You may have the opportunity to invest in options that invest in only one asset class, for example, Australian equities or international equities, or options that invest in alternative investments, such as private equity. Retail super funds usually offer the greatest range of investment options.

Choosing a conservative investment option generally means a lower return than a more aggressive option. Although a riskier investment option may deliver higher returns, you can sometimes end up with a negative return too.

Related posts:

1. Investment performance: We’re the best super fund. No, we’re the best…
2. Super for beginners, part 11: Is my super fund good enough?
3. Exposing the performance history of Australia’s largest 200 super funds

• Astarra Superannuation Plan
• Astarra Personal Pension Plan
• My Retirement Plan, including subplans – Seagrims Retirement Plan, TIC Super, and Titanium Retirement Fund
• Employers Federation of NSW Superannuation Plan.

More than 5,000 Australians lost superannuation savings as a result of fraud from the collapse of trustee Trio Capital Limited (Trio) (formerly Astarra Capital Limited), according to a  media release issued by the office of Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten.

The Federal Government is set to compensate these Australians for losses suffered, by providing a grant “of approximately $55 million in financial assistance to benefit the members of four superannuation funds that were formerly under the trusteeship of Trio.” [Media Release of 13/04/2011, No.051]

The Federal Government intends to provide compensation for 100% of losses suffered by affected superannuation investors due to fraud or other malfeasance by fund trustees. Historically, the level of Government compensation has usually been set at 90% of losses suffered.

In the media release, Mr. Shorten is quoted as follows:

“Investors in APRA regulated funds deserve to be compensated by the Government when they lose their investments through fraud or other malfeasance by super fund trustees. I’m very pleased to be able to offer Trio investors this compensation.

“Based on the application from the Australian Prudential Regulation Authority (APRA)-appointed acting trustee of the four superannuation funds, ACT Super Management Pty Limited, and advice from APRA, I am satisfied the four superannuation funds have suffered an eligible loss under the Act and the public interest requires a grant of financial assistance be made.

“The events surrounding Trio have cemented my belief that conflicted remuneration structures have no place in financial advice and underscore the need for our Future of Financial Advice reforms, which will be announced soon,” said Mr Shorten

According to the media release, the assistance to the trustee, granted under Part 23 of the Superannuation Industry (Supervision) Act 1993, is for the following super funds:

• Astarra Superannuation Plan
• Astarra Personal Pension Plan,
• My Retirement Plan
• Employers Federation of NSW Superannuation Plan.

All superannuation fund members end up paying for the fraud of superannuation trustees because the Government finances this grant by imposing a levy on all APRA-regulated superannuation funds under the Superannuation (Financial Assistance Funding) Levy Act 1993.

The Australian Securities and Investments Commission (ASIC) and APRA are continuing to investigate Trio, and you can obtain further information about Trio and the four superannuation funds by visiting the Trio website: www.triocapital.com.au

Note: This compensation doesn’t cover money invested by self-managed super fund trustees. Any SMSF trustees suffering losses from investments in Trio-related entities will need to pursue other avenues, such as considering whether the financial advice they received was appropriate, or whether there is a case to be answered against the fund manager.

Related posts:

1. Warning: APRA suspends trustee of 4 super funds
2. SMSF fraud: a case of mistaken identity
3. Investment performance: We’re the best super fund. No, we’re the best…