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Retiree numbers jump but superannuation still not adequate

Super balances are buying a bigger retirement.

Super balances are buying a bigger retirement. Photo: Getty

Australians are retiring at record levels but while superannuation balances are growing they are still far from a level which can provide an independent retirement for most people, new research shows.

As a result, spending on income support for seniors will balloon by 19 per cent to $68.75 billion by 2018-19 as the population ages, according to the Budget Papers. Total spending for the top 20 programs making up 66 per cent of the budget will grow by only 14.9 per cent over the period.

Roy Morgan’s latest State of the Nation report on Financial Risk shows that 415,000 people are estimated to be planning to retire in the next 12 months. That’s 27 per cent more people than retired in 2008 while the population has risen only 12.9 per cent over that time.

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Those people are significantly better off than the same cohort back in 2008, with their super balances averaging $197,000 compared to $119,000 eight years ago. That’s a rise of 65 per cent.

The data shows that overall wealth of retirees, excluding the family home, is up 32 per cent to $306,000. Interestingly, non-super investments held by retirees are shrinking, both in real terms and as a percentage, with the non-super component for 2016 down 2.7 per cent to $109,000.

Super, by comparison, made up 64 per cent of retiree wealth in June 2016 compared to 52 per cent back in 2008.

Net debt for retirees is a relatively low $25,000, bringing average retirement balances to $281,000.

Retirement still not comfortable

While that’s an improvement, it still leaves the average retiree well short of the ability to lead a comfortable, independent retirement.

For that, the Association of Superannuation Funds of Australia reckons an individual home owner would need $545,000 and a couple $640,000. Those balances would deliver income of $43,062 a year for singles, or $59,160 for couples.

Super cuts pension spend

While Australia’s spending on the Age Pension might be growing strongly, the success of the super system in moving spending on aged support to the private and away from the public, sector is stark. OECD figures for 2013, the latest available, show Australia has one of the lowest public expenditures on pensions in the G20 group of nations, at 3.5 per cent of GDP.

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On the other hand, Australia’s private spend on aged incomes is number two among the G20, at 5.1 per cent of GDP.

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The question for retirees and taxpayers is how quickly super can move into the gap to build balances and move more people away from the Age Pension.

Total super balances are growing strongly. Currently they sit at $2.1 trillion, according to official statistics and are expected to grow by at least 50 per cent to $3.2 trillion or more by 2020, according to ASFA.

They will build more quickly from then as the super guarantee employers must pay grows from 9.5 per cent to 10 per cent in 2021 and on to 12 per cent by 2025.

The public purse will stay open

But it’s unrealistic to think super will move most people away from the pension altogether.

Tom Garcia, CEO of the Australian Institute of Superannuation Trustees, says “the super system is still maturing”.

Tom Garcia

Tom Garcia. Photo: Supplied

“Even when the system reaches full maturity (in 47 years) most Australians will still rely on a little help from the age pension to supplement their retirement income, though the proportion of people drawing a full age pension will be much lower than currently.”

Matt Linden, public affairs director with Industry Super Australia, says “what we do know at the moment it that the super system benefits a growing number of people. Super benefits paid out to members exceed the Age Pension at the moment and that will grow”.

Superannuation is by no means an even field, however, with women’s average balances totalling only 78.5 per cent of men’s in the run-up to retirement.

And while the pension might cost taxpayers $57.7 billion currently, tax expenses on the super system cost the Treasury $26.03 billion in 2015 ISA says.

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