A Treasury report that says Australian retirees die with about 90 per cent of their superannuation nest egg unspent is being challenged by key finance industry figures.
The Retirement Income Covenant (RIC) position paper claims that older Australians are living “unnecessarily frugal” lifestyles because they’re afraid of running out of money and that retirees are focused on maintaining a big super balance.
“Most people die with the bulk of the wealth they had at retirement intact,” the paper states.
“The ‘nest egg’ framing of superannuation compounds the complexities around deciding how to manage their superannuation in retirement.
“Partly because they have only ever been primed to save as large a lump sum as possible, retirees struggle with the concept that superannuation is to be consumed to fund their retirement.
“Because retirees struggle to develop effective retirement income strategies on their own, much of the savings accrued by members through the superannuation system are not used to provide retirement income. Rather, they remain unspent and become part of the person’s bequest when they die.”
But industry figures have cast doubts on those assertions, with some noting that the Treasury paper uses just one primary research source, a 2017 paper titled Age pensioner decumulation: Responses to incentives, uncertainty and family need published in the Australian Journal of Management. The study involved a sample of 10,000 Australian retirees.
“The covenant cited the 2020 Retirement Income Review and a 2018 Grattan Institute paper, which both in turn referenced the 2017 journal paper and its panel of 10,000,” says financial group savings.com.au.
“The 2020 review also referenced ‘data provided by a large superannuation fund’, with the data and fund in question being confidential.
“Treasury’s 2020 [Retirement Income] Review also cited various research from the Department of Social Services, and research from the University of New South Wales, which generally corroborated the claim that retirees are dying with sizeable nest eggs – but not necessarily 90 per cent of assets.”
The Treasury claims have been dismissed by industry research group the Association of Superannuation Funds of Australia (ASFA) in a further study.
“The recent Retirement Income Review report stated that retirees tend to consume only the income derived from assets and not the assets themselves,” the study finds.
“However, our analysis suggests that this is not the case. In a number of studies there is considerable survivorship bias, with those still alive and still with superannuation dominating the data that has been analysed.
“That Australians do not spend their super in retirement, and supposedly have more super and other financial assets when they die than when they retired, has become a trope in narratives about the strengths and weaknesses of the Australian superannuation system,” the study concludes.
The Treasury report findings also seem to contradict data from the Australian Taxation Office (ATO) that indicates a majority of Australians over 70 have no super balance at all, writes Ross Clare, director research and resource centre at the Association of Superannuation Funds of Australia, for investment website Firstlinks.
“ATO data indicates that current superannuation balances for those aged 70 and over are, in most cases, quite modest,” he says.
“The 1.02 million individuals with superannuation equate to around 37 per cent of ABS estimates of the number of Australians aged 70 and over as at June 2018. Around 1.7 million Australians aged 70 and over have no superannuation at all.
“For the minority aged 70 and over with superannuation, the median balance falls within the $100,000 to $149,000 range. Only around 185,000 individuals had a superannuation balance of $500,000, with 27,325 individuals having more than $2 million in superannuation.
Are you or will you be super careful about spending your super? Do you take issue with the Treasury report that says most Aussies die with 90 per cent of their super intact? Why not have your say in the comments section below?
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