Projecting the future

4 min read
4 min read

Long term projections are by their very nature challenging to prepare. They are very dependent on the assumptions that are made. Dealing with future risks and uncertainties is also crucial.

In the recent Productivity Commission Draft Report Superannuation: Assessing Efficiency and Competitiveness there is considerable use of projections. A number of the projections and the cameos they support are key to the draft recommendations that are made.

While the cameos and associated recommendations have been extensively canvassed in the media and in public debate, to date public discussion of the assumptions used and the plausibility of the projections has been quite limited.

This is perhaps unfortunate as some of the assumptions deserve more detailed discussion and consideration. For instance, Cameo 2.1 in the draft report contains projections based on 6 per cent real gross rate of return over a 46 year period. A real rate of return of this amount equates to an annual nominal rate of return of around 8.5 per cent over the period. For a person aged 21 and on a starting salary of $50,000 this is projected to lead to a retirement balance of $1.1 million in today’s dollars. With a 5 per cent real return the lump sum projected is $833,000.

The small difference in investment returns leads to a big difference in absolute dollars but there is a question about how realistic those various big numbers are.

If correct, the numbers would suggest that on current settings the compulsory superannuation system will be remarkably successful in generating very large retirement savings even for individuals on less than average or even median earnings. The projections do not even seem to include moving to a 12 per cent superannuation guarantee (SG) rate.

In Cameo 2.2 the numbers are even bigger, with the projections showing a median fund in what is described as top quartile of performers delivering $1.2 million at retirement for a person currently aged 21 on $50,000. Presumably the best performing fund is assumed to produce an even bigger figure at retirement.

Big numbers can be persuasive but it is important that they are soundly based.

Other more traditional projections give far lower numbers and relatively modest differences in today’s dollars between the different options and outcomes described in the report. For instance, the standard assumptions in the ASIC MoneySmart calculators give much lower figures, in the sub $300,000 region for the cases above.

Regulators also tend to be keen on the use of appropriate disclaimers. One of the usual disclaimers attached to savings projections is that past investment performance is not necessarily a guide to future investment performance.

There are a number of reasons for such a cautionary note. Investment returns vary over economic and financial cycles, and reversion to mean returns in the long run is something that has been observed in investment markets and for superannuation funds in Australia. This is relevant to whether a top ten fund list makes a lot of sense.

The Productivity Commission report’s assumption of 46 years uninterrupted paid employment and steady career progression may also not be representative for many in the labour force. It may not even be typical these days for a public servant. And for many women time out of the paid labour force for family reasons and periods of part-time work are more the norm.

Other figures in the draft report also deserve a good look. The incidence of multiple accounts—and their cost to the fund members who have such accounts—are important in regard to various policy changes canvassed in the report.

The average account numbers in the draft report appear to be based on the assumption that only current members of the paid labour force should have a superannuation account, leaving out those retired or not currently in paid work. As well, the Productivity Commission seems to assume that many of those in Eligible Rollover Funds are paying average fees applying to other funds and have insurance costs as well.

There are a number of aspects of current superannuation arrangements where changes could lead to better outcomes for fund members. Having a strong evidence base and soundly-based projections will be crucial for developing reforms that deliver enhanced outcomes for fund members.

Picture of By Ross Clare

By Ross Clare

director of research

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Carmen Beverley-Smith

Executive Director - Superannuation, Life & Private Health Insurance, APRA

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Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Carmen joined APRA in March 2023 and holds the role of Executive Director, Life and Private Health Insurance and Superannuation.  

She has had an esteemed career in financial services, spanning over 25 years. She has held diverse leadership roles at Westpac and Commonwealth Bank of Australia, including across risk, transformation and change, product and portfolio development, and sales and service. 

Prior to joining APRA, she held the role of General Manager, Risk Transformation Delivery Integration at Westpac. This involved leading the group-wide implementation of a suite of solutions to uplift risk management capability and develop data, analytics and reporting. 

Carmen leads with a values-driven approach and a particular interest in developing and mentoring talent. 

She holds a Bachelor of Commerce and Accounting, is a certified Chartered Accountant and a Graduate of the Australian Institute of Company Directors. 

Amy C. Edmondson

Novartis Professor of Leadership and Management, Harvard Business School

Sessions

Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Amy C. Edmondson is the Novartis Professor of Leadership and Management at the Harvard Business School, a chair established to support the study of human interactions that lead to the creation of successful enterprises that contribute to the betterment of society.

Edmondson has been recognized by the biannual Thinkers50 global ranking of management thinkers since 2011, and most recently was ranked #1 in 2021 and 2023; she also received that organization’s Breakthrough Idea Award in 2019, and Talent Award in 2017.  She studies teaming, psychological safety, and organisational learning, and her articles have been published in numerous academic and management outlets, including Administrative Science Quarterly, Academy of Management Journal, Harvard Business Review and California Management Review. Her 2019 book, The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation and Growth (Wiley), has been translated into 15 languages. Her prior books – Teaming: How organizations learn, innovate and compete in the knowledge economy (Jossey-Bass, 2012), Teaming to Innovate (Jossey-Bass, 2013) and Extreme Teaming (Emerald, 2017) – explore teamwork in dynamic organisational environments. In Building the future: Big teaming for audacious innovation (Berrett-Koehler, 2016), she examines the challenges and opportunities of teaming across industries to build smart cities. 

Edmondson’s latest book, Right Kind of Wrong (Atria), builds on her prior work on psychological safety and teaming to provide a framework for thinking about, discussing, and practicing the science of failing well. First published in the US and the UK in September, 2023, the book is due to be translated into 24 additional languages, and was selected for the Financial Times and Schroders Best Business Book of the Year award.

Before her academic career, she was Director of Research at Pecos River Learning Centers, where she worked on transformational change in large companies. In the early 1980s, she worked as Chief Engineer for architect/inventor Buckminster Fuller, and her book A Fuller Explanation: The Synergetic Geometry of R. Buckminster Fuller (Birkauser Boston, 1987) clarifies Fuller’s mathematical contributions for a non-technical audience. Edmondson received her PhD in organisational behavior, AM in psychology, and AB in engineering and design from Harvard University.

 

Daniel Mulino MP

Assistant Treasurer and Minister for Financial Services

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Born in Brindisi, Italy, Daniel was a young child when he moved with his family to Australia. He grew up in Canberra and completed his first degrees – arts and law – at the ANU. He then completed a Master of Economics (University of Sydney) and a PhD in economics from Yale.

He lectured at Monash University, was an economic adviser in the Gillard government and was a Victorian MP from 2014 to 2018. As Parliamentary Secretary to the Treasurer of Victoria, Daniel helped deliver major infrastructure projects and developed innovative financing structures for community projects.

In 2018 he was preselected for the new federal seat of Fraser and became its first MP at the 2019 election, re-elected in 2022 and 2025. From 2022 to 2025, Daniel was chair of the House of Representatives’ Standing Economics Committee in which he chaired inquiries; economic dynamism, competition and business formation and insurers’ responses to 2022 major floods claims.

In 2025, he became the Assistant Treasurer and Minister for Financial Services.

In August 2022, Daniel published ‘Safety Net: The Future of Welfare in Australia’, which aims to explore the ways in which an insurance approach can improve the effectiveness of government service delivery.