Although the public debate about superannuation suggests retirees are miserly spenders who leave much of their super intact to hand on to their kids, new figures from the Association of Superannuation Funds of Australia (ASFA) show that not to be the case.
According to ASFA, 1.68 million Australians over 70, or 60 per cent of that cohort, have no super, mainly because they’ve already spent what they had.
But that reality appears to be shifting as more and more baby boomers enter retirement.
That’s because many of the older post-war cohort lived for most of their working life with little or no super, while baby boomers had not been working for long when compulsory superannuation was introduced in 1992.
The ASFA figures are stark.
They show only a minority of older retirees have superannuation. And for the minority of those aged 70 and over who have it, the median balance sits between $100,000 and $149,000.
Only about 185,000 individuals had a superannuation balance of $500,000 or more, with 27,325 individuals (about 1 per cent of those aged 70 and over) having more than $2 million, ASFA found.
Using the HILDA dataset from the University of Melbourne, ASFA also found that many people who had hoped to inherit their parents’ super in recent years would have been disappointed.
“The HILDA data shows that 80 per cent of people aged 60 and over who died in the period 2014 to 2018 had no super at all in the period of up to four years before their death,” the report said.
“For those aged 80 plus, over 90 per cent had no super in the four-year period before their death.”
Of those aged 80 plus who had super, only 5 per cent had superannuation balances higher than $110,000 in the four years leading up to their deaths.
The well-documented gender gap in super balances was again demonstrated in ASFA’s figures.
“For those who died in the period 2014 to 2018, only 15 per cent of females aged 60 plus at death had any superannuation compared to around 25 per cent of men,” the report found.
That gender gap is continuing, with women nearing retirement age still less likely than men to have any super at all. And their median super balance was also 27 per cent lower than the median balance of men.
But while median retirement balances were still relatively modest in 2017-18 – as the above chart demonstrates – the situation appears to be changing rapidly.
APRA figures for the five years to 2020 show both overall super investments and the amount being paid out to retirees have jumped dramatically.
Overall super balances rocketed from $1.96 trillion in June 2015 to $2.87 trillion five years later, a rise of 32 per cent, despite the fact that June 2020 was in the middle of the pandemic market slump.
Overall investment income in super rose 20 per cent to $193.7 billion by June 2019 and the average super benefit paid out to members rose 51 per cent to $27,920.
Total benefit payouts to retirees were up 55 per cent to $55.42 billion.
Those dramatic increases came despite the fact that population grew only 1.5 per cent annually and the retirement age population grew at 2.9 per cent, according to the government’s research paper, Australia’s Ageing Population.
Boomer push for higher super
Those figures show that many retirees will be in a better financial position in coming years than their elders were after a lifetime in the workforce, economist and former Rudd-Gillard government minister Craig Emerson said.
But despite that growth, the superannuation guarantee will still need to rise from the current 9.5 per cent of wages to 12 per cent, as has been legislated, he said.
“While the Retirement Income Review and the Grattan Institute found that 9.5 per cent would be enough, that is politically not going to work,” Dr Emerson said.
“The large and growing baby boomer cohort that is retiring aren’t going to regard the age pension as adequate, so the super guarantee needs to be increased to prevent them having to live on the pension [in part of their retirement].
“Baby boomers, if they get angry, will have the political power to force governments to increase the age pension by a large amount if the super guarantee is not increased.”
Although growing super balances would deliver a better outcome for more retirees in the future, many people will miss out on this increased prosperity, said Ian Henschke, chief advocate with National Seniors Australia.
“[The ASFA] report highlights again that there are winners and losers in the current system, with 1.7 million retirees not having super at all,” Mr Henschke said.
“If we have one of the best retirement systems in the world, then we need to investigate why that is.”
Financial literacy is key
Deborah Ralston, a professorial fellow at Monash University and one of the authors of the government’s Retirement Income Review, said the low balances of many retirees highlighted the need for more financial education.
“There is a lot of talk about using super efficiently, but that doesn’t mean spending all your super,” Professor Ralston said.
“It means using it intelligently. A lot of people pay a few bills then put the rest into a term deposit.
“They should put it into an allocated pension and earn an income through retirement.
“Funds need to give members education and guidance on how to use their super in retirement well.”
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