Is super working? After 30 years, the numbers suggest it could be

For over 30 years, Australia fought a great national crusade to provide dignity in retirement. Is it working? The numbers suggest so.

Our superannuation coffers now hold $2.3 trillion1 - that’s nearly 150% of GDP. In 2022, pension flows out to members were worth nearly 7% of GDP.

The evolution of our super system has changed our country by altering expectations of how old age is lived. AMP Head of Investment Strategy and Chief Economist Shane Oliver says, “Super underpinned capital flows into our economy and picked up the tab for much of our national infrastructure. It also made us a nation of mini capitalists. Super created a feeling of financial independence.”

We’re getting there – the changing face of retirement

There’s growing evidence the system is doing what it was designed to do. Firstly, the cost of retirements is falling more lightly on the taxpayer. The Retirement Income Review suggests that by 2060 the number of eligible Australians on the age pension will fall from 71% to 62%.

Conversely, the number receiving a part rather than full age pension will rise from 38% to 63%.

At the same time, a dignified, comfortable retirement could be available to more people. The average range of retirement capital outcomes is getting higher. According to Treasury’s Intergenerational Report, the median super balance at retirement in 2020-21 was around $125,000.

By 2060-61 it will be around $460,000 (measured in 2021 dollars). Healthy retirement balances will be more common. In 2020, 65% of retirees entered retirement with an average super balance under $250,000. By 2060 fewer than a third of Australians are expected to retire with a balance that low.

More Australians will retire ‘rich’. By 2060, 13% will retire with a super balance worth a million or more². The unknown is how much that sum will really mean by then.

“‘The Great Risk Transfer’³ means we’ve put a whole lot of responsibility on the individual,” says John Perri, Head of Technical Strategy at AMP. “Some people retire without a house, some with multiple houses. We all have completely different super journeys. And that means we’ll have different journeys in retirement.”

The Treasury chart above highlights the effect the maturing of the super system is having on the retirement prospects of Australians.

 Yet as always, big numbers obscure distinct human realities. Someone retiring in 2020 after an uninterrupted work life would have spent the first 12 years without compulsory super⁴.

And while there’s good news in aggregate, individual retirees and pre-retirees face a wall of real worries. For many pre-and early retirees, Fear of Running Out (FORO) is a major anxiety, especially as the growing cost of living eats away at your lifetime savings.

¹ Mercer CFA Institute Global Pension Index 2022

² Superannuation balances at retirement, Treasury Information Note, 2019.

³ The Great Risk Shift by Jacob S Hacker in the early 2000s.  

⁴ Treasury Information op. cit