 |
| Super Contributions - the future |
Dynamics of the Australian Superannuation System: the next 20 years 2011 – 2030, explores a range of scenarios that show the comparative growth in superannuation assets by market segment, in the demographic makeup of post and pre-retirement funds, and what longevity means for retirement adequacy.
To put the average balance at retirement in context, the authors turned to the current Association of Superannuation Funds of Australia (ASFA) Retirement Standard, which suggests that a single male requires $22,000 per annum for a modest lifestyle in retirement. That means to retire on a modest lifestyle a male will require a balance of $280,000. A female will need the higher amount of $310,000 due to greater longevity. But...the average balance for a male at retirement in 2030 will only be $217,000 in today’s dollars, and the average amount for a female will be even less - $139,000.
Given that 50 percent of the population is expected to live beyond the standard 85 years of age for a male and 88 years for a female...a single male retiring with an account balance of $217,000 and taking an income stream of $22,000 per annum has a 78% chance of outliving his retirement benefit.
The Report projects that recent strong growth in industry funds, master trusts and Self Managed Super Funds (SMSFs), will continue at the expense of corporate and public sector funds.
The Deloitte model projects that SMSFs will continue to remain a popular superannuation option overall with its assets reaching $2 trillion by 2030. This is however almost one trillion dollars lower than in their 2009 projection, which is almost entirely due to the introduction of lower concessional contribution limits.
Generational change is significant. The report finds over the next 20 years, the share of assets held by Generations X and Y will grow from about 46% in 2010 to become the dominant superannuation customers with 84% of all assets in 2030.
The combination of longer life expectancy and volatility in the investment markets is raising the risk that retirees will run out of money before they die. The Deloitte report finds this presents an opportunity for the industry to think innovatively and find new solutions to what will become an increasing challenge.
The Australian Superannuation system is still dominated by lump sums, but we are seeing an increasing proportion of retirees opting for an income stream. It is expected that this trend will continue, presenting a challenge for funds to provide services and pension benefits for members as they approach and transition into retirement.
The decision to increase the Superannuation Guarantee to 12% and lift the qualifying age for the age pension to 67 years, are intended to help Australians provide for their own retirement – by saving more and working longer.
Addressing adequacy in retirement is described by Deloitte as "a work in progress" see here.
A significant factor under consideration by industry about which the ATO/Government is aware is the possibility of increasing the limits for concessional contributions when a person is nearing retirement.This would go some of the way to resolving the question of adequacy of superannuation.
