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Super balances still too low
The reality that continues to confront the majority of Australia’s baby boomers is that they will remain reliant on the Age Pension in retirement.
That is the bottom line of Association of SuperannuationFunds of Australia (ASFA) research released in early June.
The research, titled ‘Are retirement savings on track?’, looked at average superannuation fund balances and sought to project whether those balances when extrapolated out to when people finished work would be adequate to cover retirement.
The bottom line is that they will not. While the research suggests Australians are becoming increasingly better prepared for retirement, it adds “current average balances are below those which the Commonwealth Treasury projected at the time compulsory superannuation was introduced”.
It added, “The data also indicates there are a number of groups with relatively low levels of superannuation who need further assistance and encouragement to save if they are to achieve even a modest standard of living in retirement”.
To gauge the extent to which Australian superannuation account balances are closing the retirement savings gap, the ASFA research refers to the situation that prevailed in 2004 and that which prevails today, in 2007.
It said that in 2004, the average balances achieved by men and women were $56,400 and $23,900 respectively — just over half the Treasury projected balance for men, and less than half the project average balance for women.
It said the median balances were considerably lower given that many individuals had little or no superannuation.
The survey said since 2003-04 there had been further increases in balances, with average retirement payments in 2006-07 likely to reach around $130,000 for men and $45,000 for women, giving rise to a grand average of around $90,000 for all persons.
The report makes the point that as Australia’s compulsory superannuation system matures, outcomes will improve.
“On the basis of the current average superannuation balance and average income of those aged 35 to 44 and the assumption of only compulsory superannuation contributions being made, the average retirement superannuation payout at age 60 for a male currently aged 35 to 44 would be $183,000, while for a female it would only be $93,000,” the research report said.
“With around 70 per cent of retirees in this age cohort likely to have superannuation balances below these amounts, these projections suggest that compulsory superannuation will provide a useful but modest supplement to the Age Pension for the majority of this age cohort,” it said.
The report suggests that the Federal Government’s most recent changes to superannuation policy arrangements will go some way towards addressing the issue, but more needs to be done.
“While the abolition of taxes on benefits received by those aged 60 and over from a taxed fund provides a welcome boost to retirement living standards, it is of direct relevance to less than 20 per cent of current and reasonably prospective retirees,” the research report said.
It said that only a small minority of retirees had or were likely to have lump sum benefits in excess of the tax-free threshold applying to such benefits.
The report said the abolition of the tax on benefits received by those aged over 60 was an affordable measure for the Government.
“For most Australians, a boost to the co-contribution and/or a reduction in the tax on employer and other tax deductible contributions would be of greater benefit than the abolition of the tax on superannuation benefits received by those aged 60 and over,” the report said.
Looking at who is gaining most from the superannuation system, the ASFA report said there were marked differences in superannuation entitlements by gender, income, labour force status, industry and occupation (although a number of these factors were correlated).
It said men held around 70 per cent of total account balances, although the share held by women was up markedly from a low 23 per cent in 1994.
The data said that those with relatively high account balances held in total a large part of overall superannuation assets.
“The 10 per cent of the population with over $100,000 accounted for just over 60 per cent of the total superannuation assets at the time,” it said.
AUTHOR
Mike Taylor
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