Making headlines: Super is delivering for retirees

The compulsory super system was launched in 1992 with the goal of helping people save for their retirement.

In the lead up to its launch, Prime Minister Paul Keating said that, compared to life on the age pension, superannuation could be “the difference between a full, active life and a life governed by budgetary exigencies and the vagaries of politics. The difference between being able to enjoy the free time at the end of one’s working life and wanting the means to enjoy it.”

This as the purpose of super was enshrined in law by the government in 2016, with new legislation stating the objective for superannuation is “to provide income in retirement to substitute or supplement the age pension”.

Almost 30 years on from launch, new research has found that the system is, for the most part, delivering on this goal.

According to research from Challenger, there is now more than $800 billion in the super accounts of members aged over 65. This figure represents over 28 percent of total assets in the super system.

The average balance per member in retirement is $305,000 for those in not-for-profit funds, like Qantas Super, compared to an average balance of $255,000 for members in retail super funds.

The average balance for Qantas Super members aged 65 and above is $390,000.

Given that the age pension is means tested, Challenger found that just 45 percent of 66-year olds were accessing at least part of the age pension, while only 25 percent were drawing a full age pension.

Overall, only 42 percent of age eligible retirees were on the full age pension – this includes retirees in their 90s, who have likely never had super.

“Super is working on a mass scale, even though it does leave a minority of people behind. Contrary to many opinions, super is reducing reliance on the age pension for the large majority of people entering retirement,” the report stated.

“The evidence for this is that the average newly retired Australian is not accessing the age pension at all.”

The numbers show that Australians are on their way to reaching retirement with the savings required to live what ASFA considers a comfortable lifestyle.

The Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard estimates that, to live a comfortable lifestyle, a couple will require $640,000 in savings at retirement, while a single person will require $545,000.

ASFA defines a ‘comfortable’ retirement as one that “enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities”.

A comfortable retirement will also enable this retiree to have a good standard of living by allowing them to buy things like good clothes, a reasonable car, private health insurance, and household goods.

“Members across a wide range of funds have retirement savings that can support a more desirable lifestyle in retirement than has previously been achievable,” the Challenger report states.

As Challenger noted, however, the super system isn’t perfect – particularly for women.

In fact, according to research from ASFA, 60 percent of the $2.8 trillion in the super system belongs to men, and 40 percent to women.

Broken down, the figures are especially concerning.

ASFA’s research found just 18 percent of Australian women aged between 55 and 59 have saved more than $200,000 for their retirement, compared to 37 percent of men in the same bracket.

What’s more, half of all women in this age bracket will retire with less than $50,000 in their super.

Unsurprisingly, women have a low degree of confidence in their super.

According to the latest Retirement Confidence Index from Qantas Super, just 28% of women feel they can rely on their super and other investments for retirement, compared to 40% of men.

Why the gap?

It’s due to a variety of factors; for example, women are more likely to take time out from work to have children or look after family members, work in casual or part-time roles, and be paid less than their male peers doing the same role with the same experience*.

While some of these factors, like the gender pay gap, are structural, there are a few things women can consider doing to boost their super balance.

*Australian Bureau of Statistics: Average Weekly Earnings, Nov 2017, cat. no. 6302.0

1. Tidy up your super. Combining your super funds and finding lost super makes it easier to track your total balance, reduces your paperwork and can mean you pay fewer fees overall.
2. Top up if you can. Consider topping up your super — even small amounts count towards making time and compound interest work for you.
3. Check your investment option is right for you. Make sure your money is invested in a way that considers your attitudes towards risk, your timeframe to invest, and your personal circumstances. It can really impact the value in the end.
4. Make sure you’ve got the right amount of insurance. If you’re over-insured, paying premiums for cover you don’t need can deplete your super balance. If you’re under-insured, you may not have enough to protect your family in the event of an unfortunate event.
5. Understand your potential entitlements. If you’re eligible for any government offsets and co-contributions then you should take advantage of them.

There’s been commentary in the media of late about the legislated increase to the Superannuation Guarantee (SG) – the minimum percentage of an employee’s ordinary time earnings that an employer must contribute to their super.

Currently set at 9.5%, the SG is scheduled to increase to 10% in July 2021, and by 0.5% each subsequent financial year until it reaches 12% in July 2025.

As the first scheduled increase creeps closer, the noise surrounding it has grown louder.

The Grattan Institute, a public policy think tank, released a report in July claiming that raising the SG to 12% would cost a typical (median) 30-year-old Australian earning $58,000 today around $30,000 in wages over the course of their working life.

The report asserts that, because they will have to budget for higher super contributions, employers won’t give staff pay rises.

Keeping the SG at 9.5%, the Grattan Institute argued, would be sufficient to provide for the average person’s retirement.

However, the report has been soundly refuted by the industry.

Dr Martin Fahy, CEO of the Association of Superannuation Funds of Australia (ASFA), said the report’s assertion that keeping the SG steady would lead to a 2.5 percent wage increase that would flow through to individuals in full is “an heroic assumption”.

“In reality, the increase in personal tax, withdrawal of family tax benefits and childcare subsidies would erode most of the increase, leaving people no better off in working life, and worse off in retirement,” he said.

Workers themselves are also looking forward to the SG increase.

A recent survey of 1,000 Australian consumers conducted by ASFA found 80% of respondents support the increase of the SG to 12% of wages by 2025.

This figure is steady across different age groups. Over 75% of Gen Y respondents, 84% of Gen X, 80% of Baby Boomers, and 81% of ‘pre-Boomers’ – respondents aged 74 and above – support the increase.

Meanwhile, just 5.9% of respondents believe the age pension alone would be sufficient for their needs in retirement.