Apples, Apples And Sour Lemons

Sydney Morning Herald

Wednesday June 22, 2005

Michelle Innis

Fees will play a big part in how much you have in retirement. Michelle Innis finds calculators to help.

The latest gadget in the superannuation savings toolbox appears to be the super calculator. If your super fund's website does not have one yet, it probably will soon. Some funds, such as MLC, are in the process of updating theirs, before the introduction of super choice on July 1.

The calculators fall broadly into two categories: those that allow investors to work out how much they need to save for retirement and those that compare funds and fees.

Generally, the easiest calculators to use are those designed to show how much money you need to retire comfortably.

AMP has a series of calculators, at www.amp.com.au, covering how much you need to save, whether you are on track and how much you can draw down once you retire.

The calculators are simple, says Mike Smith, an AMP spokesman.

"They don't replace good investment advice," he says. "They are supposed to give you an idea of what you might need to save if you want to maintain a certain standard of living in retirement. Each person will have different needs. But if you want to test whether salary-sacrificing money into super is a good idea, the calculator can help."

Smith says some of the calculators assume investors are paying a "default rate" of $1 a week in fees and a further $1 a week to cover insurance premiums. This might be on the low side for some funds.

Although the assumptions differ for each of the calculators listed, AMP assumes a real return of 3.25 per cent (or 6.25 per cent before inflation). Current assumptions do not include changes to super rules and tax rates announced in the federal budget.

Last week, the National Australia Bank-owned MLC launched a new calculator on its website at www.mlc.com.au, says Paul Maddock, head of platform services.

Maddock says the MLC calculator is not a "fund comparison" tool. "It will allow you to pull some levers, including what sort of returns you might expect and how much extra you might need to add to your savings."

Investors will be able to refine returns based on their risk profiles. But Maddock says the calculator is a tool to help people assess how well they are saving.

"Let's face it, there is a lot of complacency out there about superannuation savings," he says. "It's better for people to be able to check out now what they need."

The Association of Superannuation Funds of Australia says its calculator, at www.superannuation.asn.au, also aims to shake investors out of their savings apathy.

"There is a shock factor there for some," says Philippa Smith, the association's chief executive. "A lot of people think that what they are saving through compulsory super is going to be fine. It may not be."

Smith says the association's calculator, which is one of the simplest to use, won't compare funds or fees.

"It's about assessing how much you are likely to have in retirement given current savings, and hopefully with enough time up your sleeve to take action if it doesn't stack up," she says. "It's about the possibility of changing behaviour, maybe encouraging people to save more."

But for many investors trying to drive their dollar further, fees will play a big part in their decision to invest with one fund or another.

Rainmaker Information's director of research, Alex Dunnin, says investors need to know what fees their fund charges. But, he adds, high fees are not always a negative.

"If you want a lot of bells and whistles on your fund, including the ability to change asset allocation regularly, that might cost more," Dunnin says. "Fees don't pay for returns, they pay for flexibility."

So, if you are plugging fees into a calculator, know what you are paying for first and whether you need those features. Rainmaker also has calculators at www.rainmaker.com.au. One adds up fees in the current year and the other will calculate savings.

Dunnin says making long-term projections on fees can be complex and esoteric. "When you buy a car, do you work out how much it is going to cost in petrol, oil and service charges over the life of the car?

"Calculators that have complex additions can be too hard. The technology behind them is beautiful, but they can be very difficult to work."

Certainly, the Australian Securities and Investments Commission's calculator, soon to be part of every investor's life, is complex.

FIDO is the regulator's consumer website and the calculator can be found at www.fido.gov.au. From July 1, ASIC will require all fund managers to refer to the calculator in product disclosure statements. The aim is to allow investors to compare funds and fees.

"You may be surprised at how a small difference in fees makes a big difference to what you'll save for your retirement," says Greg Tanzer, executive director of consumer protection at ASIC.

"The FIDO calculator is fair and independent. It gives you a fair picture by adjusting your final savings for rises in the cost of living and in community living standards."

Tanzer says ASIC will launch a second round of reviews of online calculators shortly after the advent of choice, just to ensure none step over the line and offer advice.

© 2005 Sydney Morning Herald

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