Super: what you say is needed and average balances

Exposing the gap between super targets and average savings.

Super still a work in progress

YourLifeChoices asked members in its 2018 Retirement Matters Survey how much in savings they believed was required for a comfortable retirement. The respondents are people who are in, or close to, retirement and therefore the most qualified to comment.

Fifty-seven per cent of the 5932 respondents said a couple needed $600,000-plus and 22 per cent said at least $500,000; while 69 per cent said a single person needed a minimum of $300,000.

So how much do Australians actually have?

According to the Australian Bureau of Statistics (ABS), during the years 2015 and 2016, the mean superannuation balance at, or approaching preservation age (55–64 years) was $310,145 for men and $196,409 for women.

However, the Australian Institute of Superannuation Trustees (AIST) estimates that most people approaching retirement have about $100,000 in super. Less than five in 1000 fund members have the coveted $1 million or more that bump up averages, it says.

The compulsory Super Guarantee (SG) was introduced in 1992 as a means of creating retirement income for older Australians and reduce reliance on the Age Pension.

But even with the adjustment of the SG from nine per cent to the current 9.5 per cent – with 12 per cent the target from 2021 – the balances achieved do not fund the lifestyles many retirees want.

AIST CEO Tom Garcia says: “The reality is that most Australians – including most of those starting out in the workforce today – will not retire with the equivalent of $1 million in super.

“We need to stop focusing on the needs of a privileged few and start talking about how relatively small balances of super can still make a big difference to the quality of life in retirement.”

The reality is that most people who retire in the next few years will rely partially or substantially on the Age Pension, and while the gender gap is closing, women still lag substantially behind when it comes to average super balances.

In YourLifeChoices’2018 Retirement Matters Survey, 47.55 per cent of respondents said they were on a full or part Age Pension, while 52.45 per cent said they were self-funded. Almost half – 44.6 per cent – said they did not believe their savings would provide an income for life and another 31.8 per cent were unsure. Only 23.6 per cent were confident their nest egg would last the journey.

Super savings have a way to go.

The 2018 Federal Budget sought to address some glaring super issues, including banning exit fees, protections for low balances, more power for the Australian Tax Office to merge multiple accounts, and changes in relation to default life insurance.

In September, 19 industry funds agreed to automatically consolidate multiple accounts that were inactive and contained less than $6000. These are steps in the right direction, but the journey is far from complete.

The Federal Government’s Productivity Commission report, Superannuation: Assessing Efficiency and Competitiveness, found that:

  • by eliminating multiple accounts and switching to a better-performing fund, a 55-year-old could gain an extra $61,000 by retirement age
  • over the past 10 years, one in four funds have ‘persistently’ fallen short of the mark, potentially costing a new member $375,000 by retirement age.

The super industry is in the spotlight, but for all those either in or nearing retirement, particularly females, the challenge is to make the most of what you have, which for many will mean seeking professional advice.

And the added difficulty there is the sometimes illegal and often immoral activity unearthed by the financial services royal commission. Trust in the sector is at an all-time low.

While there is a clear focus on amendments to the accumulation phase of super, what about the decumulation process? How much should you be drawing from a pension account? Should you buy an annuity? Can you structure your super in order to be eligible for at least a part Age Pension?

Financial giant KPMG says meeting the needs of retirees in retirement is both complex and evolving. “Most funds have answered the questions of the accumulation phase in similar ways, but there is likely to be a significant divergence in how funds respond to decumulation,” the company says in its Super Insights 2018 report. “Succeeding in the decumulation space is the next big challenge, and a powerful opportunity for the super funds bold enough to lead the way.

It is imperative that Australians maximise the value of the super they have, which is why the September edition of the Retirement Affordability Index™ answers ‘The Super Challenge’. This issue explains the nuts and bolts of super and present three case studies – one for each of our tribes, Affluents, Constrained and Cash-Strapped – created by three financial advisers. Their task was to make super balances of $70,000, $200,000 and $420,000 go further. We hope their strategies can inform and help you.

Do you understand the various decumulation strategies and what could work the best for you?



    To make a comment, please register or login
    21st Oct 2018
    When superannuation was introduced the rate of pay automatically allocated to this was supposed to rise to 15%. All that ever happened is that the rate barely moved and the wealthy avoided paying tax on their income by piling absolutely huge amounts of money into their concessionally (15%) taxed superannuation accounts...until the feeding frenzy was stopped decades later. Funny how it took two decades to see what was happening and do something about it.
    Liek many other aspects of life average people are being duded and will retire without enough money to live on. That's how it always works apart from very astute people who manage to survive a system heavily stacked against them from birth.
    21st Oct 2018
    You give a good explanation about the start of super and you are quite right in your assumption that it is benefiting the better off more than the ordinary person. In my experience (at the lower end) I saw the continuous drain of super balances for hardship causes. As soon as my co-workers had some money saved up there came an application to drain it all. That was not foreseen by Keating either.
    Over in Europe I was working almost 50 years ago, had super deducted from my pay, only found out when reaching 65 that the money was never sent to the Govt Super Fund, not mine nor the employer's. So those years were not counted and I am only getting $109 per month from that fund. Not too sure that does not happen here as well. Do check up from time to time; I was too trusting and probably too young to care about old age provision.
    21st Oct 2018
    its tough working and watching your money. Unfortunately your case says a lot about how crooked the system is.
    I'd not be giving up on this Jim. Keep pursuing the matter and I'm sure you would get what you were owed.
    22nd Oct 2018
    Yes Jim I believe that is quite common. My husbands Super had all "disappeared" as well when we really needed it. The Fund had gone bankrupt supposedly. There is nothing stopping phoenixing of these entities. Many young people are being robbed. It's in the billions annually and nothing is being achieved, the regulators don't care, the trustees never pay up and nobody goes to gaol.

    21st Oct 2018
    Super is just about dead and Labor is about to out the final nsil in its coffin with their unfair non return of franking credits. I noted that our PM even mentioned Labor's proposed unfair treatment of self funded retirees last night in his speach at the Wentworth election. What a cliff hanger that has become.
    22nd Oct 2018
    Yes as well our PM should. Hockey ruined the retirement of the defined benefit savers and then the 330 000 part pensioners denied top up for no real reason except spite and hatred of unions.

    Now it's the turn of franking credits to be examined. The Germans are quite unhappy as well as apparently very rich investors have been milking the tax benefits by buying before dividend and selling afterwards. Taking dividend and credit and Capital loss on the sale. It's illegal in most of Europe apparently and our Investment bankers are under scrutiny for allowing it.

    The Court findings may very well put an end to the practise anyway.

    Self funded retirees should have realised when they came for the 330000 that they would be in the firing line.

    The worse thing was that none of it was needed. Not one bit of those horrid, austerity Hockey budgets as we are a Sovereign Monetary Country and had no inflation to deal with. Pure spiteful ideology.

    And more from Labor coming. Neither Party deserves to be in Government.
    Old Geezer
    22nd Oct 2018
    If you earn more than $5000 in franking credits your investments have to be at risk for 42 days. All investments in super have to be at risk 42 days for franking credits.

    You have to be careful here too by buying and selling before and after dividends.
    old frt
    21st Oct 2018
    Anyone notice her deathly silence on her stance (miss Phelps) on franking credits .
    22nd Oct 2018
    Not surprised . She has NFI

    Waste of space
    Old Geezer
    22nd Oct 2018
    It doesn't affect her as she earns enough money to use them.

    22nd Oct 2018
    The amount of super you have in retirement is irrelevant
    Labor has stuffed it up so badly that there’s not much point to having super or saving for retirement anymore for 90% of the population

    For those who worked hard and made some money , you need $2.5m as a single and $4m as a couple in retirement . Otherwise give it away and go part pension
    22nd Oct 2018
    Labor hasn't been in power though. It's been a Liberal Government for 22 of the past 30 years.

    I think you'll find the changes so far have all been ALP except the Compulsory part that Keating did so you may be right.

    The harder you work the less they seem to pay. Very odd.
    22nd Oct 2018
    $4m?? what rot, your calculator is broken.

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