Super just ‘not going to do it’

Is this a case of stating the bleeding obvious?

Super contributions of 9.5 per cent will not be enough for someone to become a self-funded retiree. So says former treasurer Peter Costello.

“If you truly want to become independent of the Government, a self-funded retiree, live off superannuation, you’re going to have to put your own money in, he told ABC television program 7.30.

“The occupational superannuation is not going to do it.”

The Superannuation Guarantee (SG) was introduced in 1992 and the rate is legislated to reach 12 per cent in 2025. So, many baby boomers have been a beneficiary of the SG for only part of their working lives.

With the cost of retirement a key concern for most older Australians, what is the solution?

University of Sydney Business School Professor Susan Thorp says an 18 per cent super contribution would be required for anyone aiming to become a self-funded retiree.

“If it were the case that people actually wanted to become entirely independent of the age pension, for example, they would probably need to start contributing about 18 per cent at the beginning of their working life and contribute that all the way through their working life,” she told 7.30.

“Most of us are, I think, probably realistically not prepared to do that.”

YourLifeChoices’ 2019 Insight Survey, which garnered 7760 respondents, shows that almost 53 per cent of older Australians receive a full or part Age Pension and only 27 per cent are self-funded retirees.

A Grattan Institute report, Money in retirement: more than enough, argued that most people would have enough money to retire on if the compulsory super rate was left at 9.5 per cent.

Many, including YourLifeChoices in an article written by publisher Kaye Fallick and titled Report paints a false view of retirement ‘heaven’, disagreed. Former prime minister Paul Keating, an architect of the SG, now says 12 per cent will “barely cut it”.

Mr Costello says that many people feel disassociated from their super.

“For most people they don’t choose to go into it. The money is taken out of their wage by law. They know they can’t get hold of it for 20 or 30 or 40 years.

“They don’t feel as if it’s theirs, they don’t feel as if they own it.

“The Government concentrated on getting money into superannuation by law, but didn’t show much interest in what happened to it. Basically said, now it’s someone else’s responsibility.”

So, before it’s too late …

Take an interest in your super. Ensure your money is in a secure fund that has a proven track record of good returns and moderate fees.

Ensure you have one super fund and not ‘unintended multiples’. Despite repeated campaigns warning people of the costs of multiple accounts, nearly 40 per cent of all Australians have not yet heeded that advice.

The drain in having multiple accounts is magnified if they come with life insurance and total and permanent disability insurance.

And for women, the super conundrum goes to another level.

Paul Howes, KPMG’s partner in charge of wealth management, told the ABC: “The system I think has failed working women and one of the big flaws in the system was not recognising that inequality in the original design.”

Research by industry body Australian Superannuation Funds of Australia (ASFA) shows just 18 per cent of Australian women aged between 55 and 59 have saved more than $200,000 for their retirement compared with 37 per cent of men.

ASFA chief executive Martin Fahy said that was a nightmare scenario.

“Super is a narrative we tell ourselves so we can sleep at night, and at the moment women are having nightmares about their retirement,” he said.

Have you always taken an interest in your super? Have you made additional contributions over the journey?

Related articles:
Super changes hardly super
Does sustainable super stack up?
Super plan could raise pensions

Janelle Ward
Janelle Ward
Energetic and skilled editor and writer with expert knowledge of retirement, retirement income, superannuation and retirement planning.
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