24 Sep 2013

Australia’s superannuation asset pool is projected to reach $7.6 trillion in the next 20 years, equating to 180 per cent of GDP, according to new research from Deloitte.

With total assets of approximately $1.6 trillion currently in the Australian superannuation system, the asset pool is projected to grow to $4 trillion in the next decade and to $7.6 trillion by 2033, according to a Deloitte report, Dynamics of the Australian Superannuation System: The next 20 years: 2011-2033.

These projections are based on the superannuation guarantee (SG) rising from 9.25 per cent to 12 per cent and on funds’ investment returns, according to Deloitte super leader Russell Mason.

Mr Mason added the Coalition’s proposed two-year deferral of the SG increases will reduce assets by 1 per cent in the next 20 years.

While Deloitte’s projections indicate overall growth of super assets, longevity risk and adequacy of retirement savings remain a “significant concern” for the industry.

“There are pockets of fragility within the system [and] at the moment, the system doesn’t deliver enough to completely meet the retirement needs of Australians,” Wayne Walker, Deloitte Actuaries and Consultants partner, told a media briefing yesterday.

Mr Mason also indicated the SG increase to 12 per cent will not stem longevity risk or necessarily provide adequate funds for a comfortable retirement.

“To afford a comfortable retirement standard covering life expectancy, a current 30 year-old male would need a retirement benefit in 2048 of $1.58 million and a female, $1.76 million,” Mr Mason said.

“To achieve this, current 30 year-olds would need to make an additional contribution of 5.4 per cent as a male and 7.5 per cent as a woman on top of their current SG rate.”

The report also projects the possibility of deferring retirement by two and five years respectively. By deferring the retirement age to age 67, Australia’s asset pool will increase by $400 billion.

By deferring retirement to 70, an additional $1 trillion would be added to the system, bringing the total pool of superannuation assets to $8.6 trillion, the report said.

Mr Walker added that the projections indicate the government and the industry should encourage retirees to take their superannuation as an income stream or annuity, as opposed to a lump sum, to help address the demographic challenges of adequacy.

“Longevity risk might well be beyond the capabilities of the industry in itself to address, because it requires pooling,” he said.

The report also indicated industry funds are expected to grow “significantly” over the next 20 years, with their rate of growth equalling self-managed super funds (SMSFs) over the period to 2033.

“However, SMSFs are still expected to be the largest sector by far in the post-retirement superannuation market, reaching $800 billion in 2032, and eclipsing the retail personal segment in 2017,” Mr Mason said.

Written by Katarina Taurian.

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