Is Australia’s superannuation system working?

How does Australia’s superannuation system compare with the rest of the world?

Is Australia’s superannuation system working?

Is Australia’s superannuation system working? According to a new report from Vanguard Australia, our system is “quite impressive” and will only get better.

The inaugural report, How Australia Saves, revealed a distinct difference to how the US saves for retirement.

The main advantage Australia has over the US system is that ours is a compulsory savings system. In the US, it’s up to individuals to save extra for retirement either via 401(k) plans or individual retirement accounts.

“This report will tell you that the system in Australia is working,” said Vanguard Australia’s Managing Director Colin Kelton.

“We spend a lot of time in the US just convincing people to save.

“Here you have the 9.5 per cent compulsory contributions.

“In the US, 40 per cent of the population don’t actually give (extra contributions to saving for retirement).

“Only 60 per cent of Americans actually put money away for their retirement.”

Mr Kelton would not comment on tax concessions for super, but added that Australia’s retirement savings system was “quite impressive” and, considering it still hasn’t reached maturity, that’s quite the compliment.

Australia’s super system will finally mature in 2030, when a generation of Australians will have spent their entire working life with the compulsory super system into retirement age.

The report also noted that we have ‘one of the world’s largest and fastest growing private pension systems, with over $2.1 trillion in total assets as of June 2016, and close to universal coverage of the entire adult working population of some 12 million people’.

It also revealed a compound annual growth rate of 7.9 per cent for the past decade – making it one of the fastest growing systems in the world.

Mr Kelton also said future reports will document any effects the 1 July super changes will have on the system and will aid the design of superannuation products.

“There are a lot of changes to super to come in the next year or two,” said Mr Kelton.

“As we release this report, year on year, we should see the impact of those changes.”

Do you agree that Australia’s superannuation system is working?

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    COMMENTS

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    MICK
    8th Jun 2017
    11:15am
    It goes without saying that the rich have rorted the superannuation system in avoiding paying the top rate of tax on income for decades. Allowed by both sides of politics.
    So now the rich have provided well for themselves whilst ordinary Australians have been flat out finding 'excess' money (what's that?) to top up their super. Whatever changes.
    Oh yes.....before we all get too cocky remember that governments of both persuasion have been viewing the growing superannuation nest egg for a long time and trying to work out how to get their hands on it. Expect this to be nationalised at some time. When not if.
    Anonymous
    8th Jun 2017
    2:49pm
    MICK, I agree with your last paragraph. There needs to be legislation to stop governments having any access to super funds and it would be nice if, when legislating, that they set rules to govern taxes, eligibility and the amounts that super funds charge in fees. How can people plan their futures when they don't know what the rules will be. It's bad enough riding the rollercoaster of investment strategies without the all those extras being thrown in.
    marls
    8th Jun 2017
    2:59pm
    Mick
    Last year I read the gvt confiscated the Defined Benifit super and ppl have to negotiate for their super
    Before long the gvt will takes everyone's super for their age of entitlements or to give more away to overseas
    Alexii
    8th Jun 2017
    7:54pm
    I agree with you, Mick. It must be great for the rich who have really benefited from the system but certainly not much good to so many of who will be struggling to pay the bills as our meagre super lump sum dwindles and prices go up so the difference between what we "earn" on our investments and what we spend gets greater (to our detriment) all the time. Of course government and the Greens consider such retirees as wealthy - if only!!
    ex PS
    12th Jun 2017
    1:28pm
    I think that there is a misconception out there that only the rich have benefited from Super. My wife and I were both on average wages for the twenty years that we have been together. Admittedly I was on a good salary for the last ten years of my working life and managed to salary sacrifice, but we are doing quite well on my Super with her working two days a week.
    We did this by working hard, going without a new car every five years, paying off our house as quickly as possible and investing the mortgage we did no longer had to pay in Super and other investment options. In my state the government took away the Defined Benefit option for new employees and urged the staff that already on Defined Benefit Schemes to change to an Accumulative Scheme. Most of those people who converted lost traction and suffered a set back. We chose to stay with the defined Benefit and did well.
    In a nutshell we are living proof that you did not need a high salary or to start off wealthy to do well out of Super. Having said that, I have advised my son not to put any extra into Super at this point of his life as he would be putting money into an investment controlled by an entity that could, postpone the exit date at which he could access his money, stop him from leaving balances to his family and even limit his access to lump sum payments of his own money. Until there is an assurance that the government will not put their sticky thieving fingers into peoples Super payouts, it is not a viable option.
    Waiting to retire at 70
    8th Jun 2017
    11:37am
    Love Americans as we all do, I really don't think a comparison with their superannuation equivalent is anywhere near appropriate, or helpful, as a measure of how well we are doing in Australia to prepare EACH AND EVERY one of us for retirement.

    Would it be better to define a standard, based on all of the conditions here, and use that as our benchmark to assess our progress?

    The superannuation industry defines a comfortable living for a couple at around $60,000 per annum. To retire today and receive that amount for life (female life expectancy: 84.4 years, male life expectancy: 80.3 years), with no assistance from the public purse (no pension), you need, when you retire, $1.11m with an average annual return of 5% (medium to low risk investments).

    The Australian Institute of Welfare measures working age between 25 and 64. Using this as a guide, we have 40 years to accumulate $1.11m in super to live comfortably after retirement, without calling on the public purse.

    Starting in 1992 employees wage increases were traded for an employer superannuation guarantee of 3%. It was intended under the original legislation for employees to salary sacrifice 1% of their pay into super from around 1998 (this was to be gradually increased to 3%). Upon attaining the treasury benches, Howard abolished this. In addition the original legislation proposed the Superannuation Guarantee would be gradually increased to 12%. Again a series of coalition governments altered this such that today it stands 'frozen' at 9.5% ('frozen' by our "Get a Good Job" treasurer in 2013, until 2023/24 - approx). By the way, Smokin' Joe and his fellow parliamentarians have a superannuation guarantee ENTITLEMENT of 18%.

    Until the superannuation guarantee stands at 12% for a person's working life (40 years) they won't be able to attain a "comfortable" ($60,000 per annum) retirement. So calling on the public purse, will be necessary to survive. In fact, a person, born in 1998, who is on the average wage, salary sacrificing 1% of of it each month during their working life, will have just on 40% ($444,000 in today's money) to live off in their retirement. Way, way short of what is considered comfortable.

    So clearly we need to actually define the benchmark that needs to be the target for retirement. Comparing how we fair against the US simply continues to hide the truth. Industry and government need to define our retirement bench mark, then pass unalterable legislation and feck off and leave it alone so Australians don't have to worry all their lives how they are going to survive. In addition, ALL Australians on the taxpayer payroll, including our ENTITLED parliamentarians should have their superannuation tied to the retirement benchmark. If they wish to contribute more out of their post tax salary, so be it. But stop the inequity of politician receiving an 18% ENTITLEMENT as their Superannuation Guarantee.
    Rosret
    8th Jun 2017
    11:57am
    WTRA70 - I put way more than 9% into super to try and get my reserve up. I watched as one year the fund zapped $40 K off the top. I could have bought a car instead.
    I moved 50% of my funds into compound interest at what I thought was a fixed interest amount - but no - its bottomed out too.
    Fortunately the super funds seem to be back on track again but what I realised was you can't just sit back and wait for your nest egg to grow.
    The super fund managers are not looking after the client - they are looking after themselves and low returns in our portfolio is good for them - not us.
    KSS
    8th Jun 2017
    1:13pm
    " In fact, a person, born in 1998, who is on the average wage, salary sacrificing 1% of of it each month during their working life, will have just on 40% ($444,000 in today's money) to live off in their retirement."

    So they should be sacrificing more than 1%. A low paid worker on say $35000 a year sacrificing 1% is $350 per year, less than a dollar a day and far less than they would spend on a night out (something most do more than once a week). And I suspect you have forgotten about the compounding effect of the reinvestment within super.

    People need to understand that super is important and that they cannot rely on a government aged pension in the next 40 years. It is all about personal responsibility. It always was of course but this younger generation needs to forget what their grandparents did. The game is different and they will no longer be able to expect that the Government will step in and take over where their mothers left off.
    Rosret
    8th Jun 2017
    11:45am
    OK - has it worked? No. Why?
    Equality - You had to have worked long enough at a high enough pay rate to ensure a reasonable lump sum to live off the interest for the duration of your retirement.
    Females, statistically will have earned less or had time off to raise the children and some will have lived with the expectation that their husband will provide.
    Some people will have had the misfortune to back the wrong super fund provider and will be wiped out.
    Some people will meet hard times and be off work for substantial periods of time.
    Some people will need to become carers and sacrifice crucial years when they should have been working to contribute to their super fund.
    Some people will divorce.
    Some people will be single and not have the benefit from "sharing" the tax benefits of super contribution.

    Compound interest. Ah yes, some thing we all studied at school. But so did the bank executives and super fund managers. You can't compound investments anymore. They put the interest earned into an ancillary account - not the investment account. - and the super fund managers are just playing share market games with our money and charging fees whether the market is up or down. My calculations have worked out superfunds return an average of 5% p.a. compounded. ( Just try not to watch them day by day).

    Self discipline with money. Company retirement funds used to work on the choice of taking a lump sum or a guaranteed life income incremented to the CPI, or a little of both.
    You can still do that today except there is no incremental feature based on the CPI and when you run your money down - its gone. There is no life time guarantee.
    Then I see so many people with the attitude "Have money - will spend". Up go the mega beach side houses, the overseas holidays or the trips around Australia with the fall back that the government will always give them a pension.
    Privatisation. Have you ever experienced any service that improves for the customer when it is privatised. They want to make a profit. From road tolls to airport parking to private hospital cover when it comes to " You have no choice" - it costs a motza.
    For fairness I believe the government should have run this new scheme and not private enterprise and we should all receive an allocated fortnight pension based on contributions with a minimum pension for everyone - for life. That would at least stop the part pension part super payments and people hiding assets.
    Simply, a government run, not for profit superannuation fund.
    My only reservation would be having the money put into general revenue where politicians might be dipping into our super fund kitty at will.
    KSS
    8th Jun 2017
    1:18pm
    There are already not-for profit super funds you do not have to buy retail (private) funds at all and each industry has one.

    You are right about attitude though. It IS all about choices. We all make them. Just some of us make more responsible choices than others.
    Waiting to retire at 70
    8th Jun 2017
    1:41pm
    Clearly there are many issues with they way superannuation works. However, long term investment in super appears far better than waiting for government support - most of us don't want that. The facts are, since the commencement of the the current Superannuation Guarantee scheme in 1992 the total annual returns on a 'balanced' investment stands at more than 178%. Averaging just under an average yearly return of 7.5% - however it has ranged from minus 12.9% to 18%. That's the nature of investing in the future; sometimes it's up, sometimes it's down. But an average return of almost 7.5% over 24 years isn't bad. As one approaches retirement age you are likely to become more risk averse as you don't have time on your side to make up any losses you might incur on more risky investments. This means you can't just invest/contribute and hope for the best. An annual review is most important.

    In the rudimentary modal I used in an earlier comment in this thread, I used an average return of 5% across 40 years. If I had used 7.5% the investment would have been close to $700,000. Still half a million short of a "comfortable" retirement for a couple. So again, a proper benchmark for all retirement types, etc. (the "based on all of the conditions here" in my model) is needed.

    My model also assumed superannuation contribution from one partner in a "couple". If I included contributions from the other partner (and let's assume it is a person who suffers all of the occurrences you refer to; "off work for substantial period", "carers", etc.) and assume their contribution, based on an average wage, is reduced to 2/3rds of other partner, then the outcome would be somewhere between $900,000 (5% average return) and $1.2m (7.49% average return); somewhere between "median" and "comfortable" retirement living.

    All my figures are gross figures, done in 15 minutes. It wouldn't be too difficult for an actuary to develop target benchmarks for all potential retirement groups taking into account appropriate variables. Based on these outcomes we can continually measure our performance in relation to what we're achieving. Not comparing us to other countries who don't have similar benchmarks to ours. Telling us how well we are doing in comparison with another country simply hides the facts related to retirement here.
    Rosret
    8th Jun 2017
    1:47pm
    KSS When I asked the accounts department of my employer if I could choose my own super fund he said no.
    AutumnOz
    8th Jun 2017
    1:14pm
    When did the life of our superannuation system drop to 40 years?
    As I understand it the contributions started in 1992 and the lifetime contributions were calculated as a 50 year working life of a contributor from 1992 until retirement.
    Adjustments have continually been made to what should have been an excellent superannuation system which have made it very difficult, if not impossible, for anyone to calculate how much they need to pay into super to guarantee a comfortable retirement.
    Rosret
    8th Jun 2017
    1:51pm
    The new schemes started then and you needed to earn a lot more than the average wage to get to the $1m required for comfortable (not extravagant) retirement.
    Retired Knowall
    10th Jun 2017
    11:15am
    I started my first Super account in 1968 through an Insurance company.
    I didn't need a Govt. to make it compulsory before I put my retirement plan into action.
    Cowboy Jim
    8th Jun 2017
    1:28pm
    Proper superannuation will only work when it cannot be used for inter-generational
    wealth transfers. Pensions overseas are viable because everyone puts in and only the
    survivors (past 65 years) can benefit. Dad died long ago but my Mum is 94. If both partners
    pass on shortly after 65 then there is enough money for the ones who live longer. Also there is no means and asset test.
    Rosret
    8th Jun 2017
    1:57pm
    That is a pension not a super fund that is being funded by our salaries. Two people doing the same job - one started in 1989 and the other in 1991. The one in 1989 didn't have the compulsory reduction and the one in 1991 does. I think our children should most definitely inherit our superannuation fund. Its the only way I can see them getting a reasonable retirement portfolio.
    It is our earnings and I would not contribute anything extra into super if I thought it would be lost to the government coffers when I died.
    marls
    8th Jun 2017
    3:07pm
    Cowboy Jim
    My mother overseas is on an aged pension my father died before pension age and my mother also receives a portion of my fathers on top of that she receives a small pension from another country as dad was in the war there is no means tests for the age pension only in Australia in nz everyone over 65 get the full pension regardless of wealth and can continue to work
    ex PS
    12th Jun 2017
    4:39pm
    I would never invest in a fund that took your money at the end of your life. It is my money, I take the risk and I decide if I want to salary sacrifice in order to build up the equity. What gives anyone the right to deny what is left over to my surviving family when my wife and I no longer need it?
    To my mind no one in their right mind would place money in such a scheme.
    Rosret is right, this should apply to a state funded pension but not to a privately funded Super Scheme.
    floss
    8th Jun 2017
    2:19pm
    Our super system really worked until our Federal Government pulled it apart. Then it was hijacked by the wealthy who used it as a tax dodge not as a pension.Ordinary worker are now backing away from super just when they should be putting more in.From my experience Industry Funds are the way to go.
    ex PS
    12th Jun 2017
    4:43pm
    Yes I am afraid I am guilty of advising my son not to put anything extra into Super. It is too susceptible to being purloined by greedy little government fingers.
    My wife and I have done well out of Super, but it was not the diluted and deformed type of Super that this government is responsible for.

    8th Jun 2017
    2:43pm
    When the superannuation has run its full circle, we will be the envy of most western countries and all thanks to Paul Keating. When those who first started work in 1993 reach retirement age, there should be a nice little amount to help them retire in relative comfort. I don't agree that people should be allowed to dip into their super for any reason, it was never allowed with any super scheme before 1993 and nor should it be allowed now. To release funds for housing deposits won't stop house prices climbing, in fact it will only help the increase. I dispute the comments that "it's my money and I should be allowed to do with it as I want". It is money held in trust for the future and should be allowed to remain as such.
    Sundays
    8th Jun 2017
    3:14pm
    How are we going to stop people from spending their super and then falling back on the Government for a hand out unless the rules are changed to ensure that a large percentage of the final payout is taken as an allocated pension .
    Anonymous
    8th Jun 2017
    3:52pm
    Nothing to stop them whatsoever Sundays. I don't think people should be told how to spend their own money and how does an allocated pension work? How do you keep up with inflation and how do you work out how long a person will live? What you are suggesting is a defined benefit system which is being phased out because of the inability to clearly establish the costs needed. It's impossible to predict either inflation or a person's lifespan.
    Sundays
    8th Jun 2017
    4:41pm
    Of course Old Man but if everyone spends their super in the future without using it to fund their retirement how will that help the budget. I'm suggesting that super should not just be available as a lump sum but you have to take some as a regular payment. Allocated pensions exist now and plenty of people use them. Defined Benefit pensions are being phased out because they are too expensive and bear little correlation to how much you contributed to super.
    ex PS
    12th Jun 2017
    4:50pm
    Sundays, make the changes you suggest and you will not have to worry about people accessing Lump Sums, no one will put enough extra into the scheme to retire on and will end up on full or part pensions anyway. If you want people to invest money you have to give them some control over how final balance is managed.
    Why would you invest thousands of dollars in an investment scheme that would not allow you to take out money to replace a car, white goods or carry out maintenance on their property?
    Crimmo
    8th Jun 2017
    8:21pm
    2030 will be a rude awakening when the Government has to admit that a large section of the workforce has not been covered by the Superannuation Guarantee scheme and has no money put aside for their retirement. And to 'Waiting to retire at 70', we don't all love Americans. The bastards.
    justsay'n
    9th Jun 2017
    10:09pm
    Why publish an article based on incorrect facts.
    For a generation to retire in 2030 having worked a life time under compulsery super contributions would mean that compulsory Super started in 1965. Compulsory Super for all Australian workers did not commence until 1983. Prior to this only those employed by Government were given the benefit of Superannuation, Only those employed by Government had Superannuation schemes which they contributed to.
    Captain
    10th Jun 2017
    10:42pm
    I have written before that a person who commenced work in 1991/92 (the start of compulsory super), and worked for 45 years would be in the approximate area of a lifetime of super accumulation.

    That would mean that a person born in 1972 and commencing employment in 1992 (all approx dates) would have about 45 years employment with super accumulation. Compulsory super did not start in 1983, it was 1991/92.

    The so called baby boomers (born between 1944 and 1963) have not had a lifetime of superannuation accumulation, so why have the last 2 Liberal Govt's changed the rules to wreck any financial plans those people set in place under a specific set of rules? I imagine they do not have a real grasp of how the average person actually lives, spends, saves, works and hopes for their families and future.

    The already retired are the one who have been hit hardest by the 2017 rule changes and how many hundreds of thousands who will retire in the next 5 to 8 years will also be affected?

    11th Jun 2017
    4:54am
    If predictions of a massive market crash and depression are accurate, the value of superannuation will be irrelevant as it's nearly all invested in the stock market. Retirees can hardly opt for ''safe'' investment in fixed deposits etc. given the current low interest rates, so we can only hope that the predictions are wrong and the market will continue in good health. I have grave doubts given world economic trends.
    ex PS
    12th Jun 2017
    1:35pm
    Most Super Schemes offer low or low/medium risk options, these generally return about 6% to 8% in my scheme, I would think that all Super Schemes have this option as most of the people I talk to tell me that they have this option.
    I earned about 21% on International Shares as one of my options but I only invested about 15% of my fund in that area, I always remember, the higher the profit, the higher the risk.
    As you are lucky to get 3% on Term Deposits, Super is still a pretty good bet.
    Tib
    12th Jun 2017
    1:40pm
    Predicting massive market crashes is like predicting low tide. It always happens , it's a normal part of the long term cycle. Nothing is ever really safe, not stock markets not house prices not gold. So learn to live with insecurity it's the way it is.
    ex PS
    12th Jun 2017
    4:56pm
    Most of the reputable investment brokers I have talked to say the same thing. If you meet someone who says they can predict the market, give them a wide birth, they are either crazy or a conman.
    Most reputable financial advisers will tell you that depending on your investment strategy you can expect a loss from time to time. It ranges from once every seven years to maybe 3 times every seven years, depending on the risk associated with the investment.
    Macca
    13th Jun 2017
    8:25pm
    Compulsory super for me started in 1968/69 with the Transport Retirement Fund then to PASS THEN TO SASS.Prior to this employees were on on a Gratuity system paying 2 to 3 weeks salary for every year of service on retirement.At the time tax was at 5% of payout until 1983 when Keating decided to slug payouts at 20%.Constant changes and tax implications have lead to people not trusting Govts and so do not fully commit to super.As for TTR forget it.Work for as long as you want and then consider options.I'm about to turn 65 reasonably fit and chose to work and continue lifestyle and travel..I've reinvented and changed jobs 4 times and work for myself so saying your too old to work you need to change your mindset and have ago.Macca