Key points:
- ASIC has updated the default rate of nominal wage inflation in ASIC (Superannuation Calculators and Retirement Estimates) Instrument 2022/603 from 4% p.a. to 3.7% p.a. following a period of industry consultation.
- Transitional arrangements are in place until 31 December 2024 to allow providers of superannuation calculators and retirement estimates time to update the default rate of nominal wage inflation.
ASIC has updated the default rate of nominal wage inflation (default rate) in ASIC (Superannuation Calculators and Retirement Estimates) Instrument 2022/603 (ASIC Instrument 2022/603), and Regulatory Guide 276 Superannuation forecasts: Calculators and retirement estimates (RG 276).
The default rate has been adjusted from 4% p.a. to 3.7% p.a. to align with the revised long-term wage growth forecast in the 2023 Intergenerational Report (IGR).
Providers of superannuation calculators and retirement estimates relying on ASIC Instrument 2022/603 will need to update their economic assumptions to reflect this adjustment. Under transitional arrangements, these providers have until 31 December 2024 to update the default inflation rate.
From 1 January 2025, the revised rate of 3.7% p.a. will apply.
We sought feedback from industry on the default rate of nominal wage inflation and the transitional arrangements under ASIC's consultation CS 7 Proposed update to superannuation forecasts relief instrument, which closed on 2 August 2024.
All the submissions supported changing the default inflation rate to 3.7% p.a. While one submission recommended extending the transition period beyond 31 December 2024, based on our review of other submissions, we consider the proposed transitional arrangements provide adequate time for providers of superannuation calculators and retirement estimates to implement the change to the default rate of nominal wage inflation.
Some submissions recommended further changes to the relief settings, which were out of scope for our current review of the default inflation rate. ASIC will consider these changes as part of a broader review of the relief settings in ASIC Instrument 2022/603, ahead of its scheduled repeal on 1 July 2027.
We also consulted with Treasury and the Australian Government Actuary on the default rate of nominal wage inflation.
Background
ASIC Instrument 2022/603 exempts providers of superannuation calculators and retirement estimates (collectively referred to as 'superannuation forecasts') from certain regulatory requirements related to providing financial product advice if they provide their superannuation forecasts within the terms of the instrument.
When providing superannuation forecasts under ASIC Instrument 2022/603, providers must express superannuation forecasts in present values using the prescribed default inflation rates for nominal wage inflation and consumer price inflation, unless a user has inputted an alternate rate.
The default inflation rates reflect nominal wage inflation while a user is in the accumulation phase, and consumer price inflation while a user is in the retirement phase.
ASIC aligns the default inflation rates with the Government's 2023 IGR, the Retirement Income Review, and the current midpoint of the Reserve Bank of Australia's target range for consumer price inflation. The long-term forecast of nominal wage inflation was revised downward to 3.7% p.a. in the 2023 IGR, from 4% p.a. in the 2021 IGR.
In RG 276, ASIC notes we will review the default inflation rates and amend ASIC Instrument 2022/603 if we consider there has been a material change to economic conditions for long-term inflation assumptions. We considered that the reduction of the long-term forecast of nominal wage inflation in the 2023 IGR evidenced a material change to economic conditions.
The transitional arrangements recognise that providers delivering superannuation forecasts to consumers in the 2024 calendar year may need time to make updates.
ASIC offers consumers a range of resources relating to superannuation and retirement through the Moneysmart website. ASIC aligns the assumptions in the Moneysmart superannuation and retirement calculators, so they are consistent with the current settings of ASIC's relief.
