Deloitte issued a report on the superannuation system, analysing the current situation and making some future projections.
The Australian Superannuation system is not only the fourth largest in the world but also a source of pride for government and those working in the financial services industry, providing the nation with an enormous pool of investible funds that offer the potential to generate wealth and prosperity for our ageing population.
Many Australians approaching their preservation age, transfer their member balances from corporate, industry or retail funds in order to establish an SMSF. As noted in the Deloitte Report, the majority of Australians who transfer their funds to SMSF’s usually have relatively high member balances. Neither institutional funds, industry nor retail funds have a chance to compete with the fast growth of SMSF’s.
The primary objective of superannuation is to help Australians maintain a comfortable and sufficient living standard after retirement. However, the population is ageing. The number of Australians over the age of 65 will increase by 75% over the next 20 years (from 3.3 million in 2012 to 5.8 million in 2032), with a much faster rate than the working population. The implication for government is clear. There will be, as a result, fewer working Australians available to support those in retirement.
Although this is not a new idea, it is recommended that we can address adequacy by increasing superannuation contributions. For an individual currently 30 years old, to retire comfortably using their super, an additional contribution of the order from 5% to 7.5% of salary would be needed.
The Federal Government has already decided to increase the pension age to 67. Many changes have been made recently, allowing Australians to continue to have contributions paid into super at older ages (the work test and non-concessional contributions).
The endless standing weakness in the Australia superannuation system is that each Australian accumulates a lump sum balance in their superannuation account throughout their working career with the aim of using that amount to deliver an income during their retirement.
The system is divided into a number of fronts:
- Some draw directly on their super to pay off debts and/or to maximise their ability to draw on social security.
- Some pass away before their super is used up but on their death any remaining balance is moved out of the system.
- Some outlive their superannuation and ultimately have to rely on social security.
Lifetime pensions address these inefficiencies by pooling longevity risk. Excess assets held for those who die at a younger age are made available to support continuing income payments to those who live to an advanced age.
For an infographic regarding the Deloitte Report, please see here.
To see how you can transfer your benefit out/into your SMSF, please click here.
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