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Master Member
Group: Forum Members
Last Login: 2 days ago @ 3:01:55 AM
Posts: 111,
Visits: 2,010
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First off - I realise that this is not a bug as such in that, strictly speaking, MySF does make the member allocations according to the formulas as stated:
Formula 1 (this is the default selection)
Member Opening Balance+ 50% of Contributions for the member divided by Total Opening Balance of the fund + 50% of Total Contributions.
In this first formula the use of the 50% value averages the contributions made over the year.
Formula 2
Member Opening Balance + 100% of Contributions for the member divided by Total Opening Balance of the fund + 100% of Total Contributions.
Each formula will give a slightly different result.
However, for our fund I found that this actually gave a very unfair allocation because I hadn't realised that for the purposes of the member allocations rollovers from other super funds are not included as "member contributions" in the allocation formula.
Using the example of our fund to illustrate the problem:
The first year of our fund - so all opening balances are zero - so either formula 1 or formula 2 will give the same result, ie member allocations are directly in proportion to member contributions. So I did the year end rollover and left it at the default formula 1.
Our fund is a two member fund with one member (me) using it as my sole fund, whilst my other half uses it as a secondary fund to her (work)government super the result is that our respective fund balances are around 98.5% to 1.5%. So I didn't initially notice that the allocations calculated were inappropriate at around 99.7% and 0.3%.
After we completed the accounts, we sat down to see how our fund had been doing and I was quite pleased to calculate that the fund had returned 22.9% over what had been only around 9 months of operation. (Based on profit distributed as a percentage of the total input of contributions and rollovers).
Unfortunately, when we did the same calculation for our individual situations, my other half was far from impressed to find that my return was 23.2% whilst hers was 3.5%!!
The reason for this was found in the breakdown of the funds paid into the super, which was (rounded to 0.1%):
My rollovers: 36.9%
My personal contributions: 61.6%
Her rollovers: 1.4%
Her personal contributions: 0.1%
In other words nearly all her balance had come from funds rolled in - whereas over 60% of my balance had come from personal contributions.
I think, as a minimum, you need to make it clear that rollovers from other super funds are not included as "member contributions" in the allocation formula. However, it seems to me that logically an equitable allocation must take into account funds rolled in as well as personal contributions, in fact it would not be unusual for funds rolled in to exceed personal contributions. If you do not think it is appropriate to just change your formulas to include funds rolled in then at least offer them as an option, eg:
Formula 1 (this is the default selection)
Member Opening Balance+ 50% of (Contributions + Transfers in) for the member divided by Total Opening Balance of the fund + 50% of Total (Contributions + Transfers in).
In this first formula the use of the 50% value averages the Contributions & Transfers in made over the year.
Formula 2
Member Opening Balance + 100% of (Contributions + Transfers in) for the member divided by Total Opening Balance of the fund + 100% of Total (Contributions + Transfers in).
Each formula will give a slightly different result.
Taking this further, the formula should really allow for outward rollovers also - though typically this would be more unusual so a case could be made for making this optional rather than default.
I realise that you always have the option to override the default formula to account for anomalous situations - it just seems to me the default formula should better account for the fairly normal situation of significant rollovers into (or out of?) the fund.
By the way, I have restored domestic harmony by promising to make a personal contribution for my other half of somewhat more than we shortchanged her!
Neil H.
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MySF Administrator
Group: Administrators
Last Login: 4/11/2010 3:24:01 PM
Posts: 464,
Visits: 633
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Hi,
We will review the formulas and the way that the allocations are calculated to see what can be done to make sure that similar problems do not reoccur. The formulas included in MySF Manager originate from "Taxpayers Australia: Do-it-yourself Superannuation Manual".
These formulas also have another deficiency in that they fail to consider the time value of money, or the timing of the actual contributions. This means that a large contribution at the end of the period has the same weight as one at the start, despite the fact that the contribution at the start clearly has a greater capacity to earn returns throughout the year than a contribution at the end.
Regards,
MySF
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