Finance Your Super Retirement reality is nowhere near so rosy as a new survey paints it

Retirement reality is nowhere near so rosy as a new survey paints it

Rosy money.
New research painted a rosy picture of Australians' retirement balances, but the reality is slightly different. Photo: The New Daily
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Newly released data suggesting retirees had more savings than predicted came as a pleasant surprise to many, but the truth behind the numbers isn’t so clear-cut.

Super members got a shot in the arm this week when annuities group Challenger came up with figures showing retirees had bigger balances than anyone suspected and that 56 per cent of new retirees were totally self-funded.

While the findings are good news in some respects, the situation for most people is not nearly as rosy as the picture painted by Challenger.

In a report, the company found that for those aged 60 to 64 in the run-up to retirement, the average super balance was $336,000 for men and $278,000 for women.

Challenger also used Australian Taxation Office figures to establish the average retirement balance for couples was a joint $400,000 total, a significant fact to date ignored by many researchers.

The retirement costs for couples are relatively lower than for individuals and 70 per cent of Australians are coupled on retirement.

A grain of salt

However, the average balance figures used by Challenger are skewed because of the influence of people with big balances.

According to Ross Clare, research chief with the Association of Superannuation Funds of Australia, median figures give a better view of reality than a mean or average because they draw a line half way between the numbers of people with higher and lower balances.

As the above chart shows the median balances are far lower with men at $154,450 and women at $122,850, Add those together and you come to $277,306, a long way below Challenger’s $400,000 average for retiring couples.

Retirees and the pension

While Challenger says 56 per cent of 66 year olds, [the retirement age from July 1 are fully self funded, or draw no pension, Mr Clare sees things differently.

“About 18 per cent of 66-year-olds are still working, and that is likely to grow.”

If you factor in that figure then only 38 per cent of 66-year-olds are retired and living totally off their superannuation and other savings.

There is no guarantee that the 18 per cent of 66 year olds still working will eventually retire with enough money to be self-funded. Indeed it is likely that a significant number are still working because they can’t afford to retire.

The difference in the mean and median figures for retiring couples are very significant in retirees’ relationship with the age pension. If a retiring couple have joint super assets of $400,000 and own a home then they have already triggered the assets test and they will be receiving a reduced pension.

For a couple with the median balance of $277,306, the situation is different. They are more than $100,000 below the assets-test trigger and will therefore get a full pension through their retirement.

Not-for-profits have higher balances

Another surprising fact to come out of the Challenger research was that retiring members of not-for-profit super funds have higher balances than those in for-profit funds. For-profit members retire with an average of $255,000 while not-for-profit members have an average of $305,000.

Challenger’s figures also show that there are many more not-for-profit funds with higher average balances than for-profit retail funds. 

Until now it has generally been believed that retail fund members had larger balances because they tended to be older people in management who had reasonable super balances before the compulsory system was conceived in 1992.

Challenger’s work shows that is not the case or at least raises the possibility that many of those older retail fund members have already retired.

Possible reasons

The report, authored by Challenger chair of retirement income Jeremy Cooper (who helmed Treasury’s 2009 super system review), has its own views on these findings.

“There could be a range of explanations for this, including different age profiles of retired members between the two sectors, and funds’ policies around the rolling of smaller balances into the retirement phase.”

That means retail fund members may be older and retired for longer and that retail funds may be less likely than not-for-profits to consolidate multiple funds for members on retirement.

Ian Fryer, research director with Chant West, said Challenger’s report was “quite a helpful contribution to the debate on super. There has been talk that super is not working and but some of these findings say that it is.”

“I love the fact that they try to look at households,” he said.

The New Daily is owned by Industry Super Holdings

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