Inflation
Wage inflation of 3.2% pa has been assumed by default. This rate has also been used when discounting future amounts to current values.
Personal income
The user's salary is assumed to increase in line with wage inflation. In any future periods where the user has a period of part-time employment, their salary is reduced pro-rata.
Tax calculations allow for Personal Income Tax rates, the Medicare Levy, the Low Income Tax Offset and the Senior Australian Tax Offset. Threshold and Offset amounts in the first year are based on current rates. Thereafter they are indexed in line with wage inflation.
Employer contributions
The user is assumed to receive superannuation guarantee contributions. The assumed rates of contribution are:
Financial year | Rate |
---|
01/07/2013 | 9.25% |
01/07/2014 | 9.50% |
01/07/2015 | 9.50% |
01/07/2016 | 9.50% |
01/07/2017 | 9.50% |
01/07/2018 | 9.50% |
01/07/2019 | 9.50% |
01/07/2020 | 9.50% |
01/07/2021 | 10.00% |
01/07/2022 | 10.50% |
01/07/2023 | 11.00% |
01/07/2024 | 11.50% |
01/07/2025 | 12.00% |
Superannuation guarantee contributions are subject to the maximum contribution base, which is currently $$55,270 per quarter. This threshold is indexed annually in line with wage inflation.
Member contributions
Regular concessional or non-concessional contributions entered by the user are assumed to increase in each year in line with the user's salary. In any periods of part-time work, the user's contributions are assumed to decrease pro-rata.
The amount of a one-off non-concessional contribution entered by the user is assumed to be fixed, and is not indexed.
Where a Concessional or Non-concessional contribution exceeds the corresponding legislated contribution thresholds, the contributions are taxed accordingly. From 01/07/14 concessional contributions are taxed at 15% in the superannuation environment. Concessional contributions in excess of the contribution threshold are subject to additional tax; however this is levied in the income tax environment.
The Concessional and Non-Concessional contribution thresholds are indexed in line with the assumed rate of wage inflation.
Contributions are assumed to be spread evenly across the year.
Co-contribution
In each projection year, the user's eligibility for a Government co-contribution is assessed based on their salary and non-concessional contributions. A co-contribution is made to the superannuation account if applicable.
The co-contribution thresholds and maximum amount are indexed in line with wage inflation.
Investment earnings
Based on the investment return selected, the member's superannuation and pension accounts are assumed to earn anticipated investment returns of between 5.4% and 9.0% per annum before fees and tax. Earnings in the superannuation account are assumed to be taxed at the relevant rate (based on the percentage of funds invested in shares, and allowing for dividend imputation and the capital gains tax concession) Earnings in the pension account are assumed to be tax-free.
Investment earnings are assumed to be credited continuously to the fund.
Name | Earnings rate | Percentage in shares |
---|
Conservative | 5.4% | 10% |
Moderately Conservative | 6.0% | 25% |
Balanced | 7.0% | 50% |
Moderately Aggressive | 8.0% | 75% |
Aggressive | 9.0% | 90% |
Investment earnings are assumed to be credited continuously to the fund.
Fees and insurance premiums
Fees and insurance premiums are assumed to be as follows:
Management cost (% of assets) | 0.55% |
Dollar fee (per annum) | $55.00 |
Contribution fee (% of contribution) | 5.00% |
Insurance premiums (per annum) | $78.00 |
Adviser service fee (% of assets) | 0.00% |
Fees are assumed to be tax-deductible in the fund. Contribution fees are deducted at the time of contribution. Other fees and insurance premiums are deducted continuously.
Dollar fees and insurance premiums are assumed to increase in line with the assumed level of general wage inflation. Other fees are assumed to remain constant in percentage terms over the projection period.
Life expectancy
Life expectancies allow for future mortality improvements. They were derived based on the medium mortality rate assumptions in the Australian Bureau of Statistics in "Population Projections 2006-2101".
Age pension
Current Age pension thresholds and rates of payment are allowed for, based on the Single/Couple and Homeowner status of the user. Thresholds and rates of payment are indexed in line with CPI.
The age pension is subject to an asset test and an income test.
The asset test is based on the accrued balance of superannuation assets and other assets.
The age pension income test is based on deemed, rather than actual, income on superannuation and other assets.
Transition to retirement
The transition to retirement optimisation: assumes that the user continues working at the same rate; makes additional salary sacrifice contributions and draws a pension such that their net income remains constant; calculates the contribution and drawing level which maximises the benefit within the superannuation environment.
Drawings
The drawings from superannuation in retirement are calculated as: Required income less other income (as entered by the user) less any age pension amounts (as calculated by the program).
Minimum drawings
There are statutory minimum superannuation drawings in both the TTR phase and in retirement (once funds have been converted to the pension phase). For the purpose of this projection, this minimum is effectively ignored in the TTR phase, on the basis that any excess drawings could be re-contributed as non-concessional contributions. Minimum drawing requirements are also ignored in the retirement phase. Though the funds would have to be withdrawn from superannuation, if they were not required to be spent to meet the individual's target income, they would still be available, say in a bank account. Seen from the perspective of retirement funding, and without the complication of including an account external to superannuation, it seems better then to ignore the minimum drawing levels.