Australia’s
superannuation (super) system is the envy of many countries
struggling to come to terms with the pension needs of ageing
populations. But despite the A$1.3trn ($1.3trn) super industry’s
success, all is not well, warns super industry body Industry Super
Network (ISN) in a study into the use of how older Australian’s are
using their super funds.
The ISN noted that in
modelling the adequacy of current retirement income policy, the
Federal Treasury has for some time assumed that all retirement
accumulations are invested at retirement in term or life annuities.
In practice, however, the ISN’s study revealed that only a small
proportion of super payouts are invested in these
products.
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For its study, the ISN
surveyed 376 members of five major super funds. Of the respondents,
55% were male and 45% female. Respondents’ ages ranged from 50 to
over 70, and 48% were retired.
The ISN found that the
“overwhelming majority” of those surveyed did not make any
significant investment in long-term assets, including pension
products. However, the allocation to such assets did increase
markedly with retirement savings.
Specifically, only about 12%
of households with less than A$100,000 in retirement savings made
any allocation to pension products, and in this savings range the
allocation represented around 5% of assets on average. By contrast,
around 45% of households with retirement savings of A$100,000 and
over made some allocation to pension products, and the allocation
represented 32% of their assets on average.
ISN’s study also found that
large numbers of retirees across all levels of retirement savings
used a significant proportion of their super payout for immediate
consumption, repaying debt and short-term investments, including
bank deposits.
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By GlobalDataIndicating a need for
increased consumer education, the study also found that awareness
of pension and income stream products was low at 45% of all
respondents. However, awareness increased with savings level – 73%
of those with $100,000 or more in retirement savings were aware of
these products.
There is also a clear
indication that financial advisers can play a far more significant
role, with the study revealing that across all respondents only 27%
had sought financial advice about use of their super payout. For
those with savings of over $100,000, 41% had sought financial
advice.
Clearly there is a strong
risk that many Australian’s will end up with inadequate retirement
savings. Specifically, the ISN believes that at least half of
Australian’s are at risk of outliving their retirement savings and
having to fall back on the state pension.
Unsurprisingly, the ISN is a strong advocate of increasing
the minimum contribution to a super fund from 9% to 12% of wages.
This is the stated objective of the federal government.
