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?

Written by Janelle Ward

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