Our Super Power: Australia’s super system reduces taxpayer liabilities while increasing benefits for members in retirement

Industry Super Australia

Two weeks ago, the Federal Government released the latest Intergenerational Report (IGR), which projects the outlook of the economy and the Australian Government’s budget to 2062-63.

While the report identified the many complexities of a rapidly ageing population, one of the few “silver” linings for our greying nation was the finding that Australia’s compulsory super system is lessening the fiscal burden of an ageing population while lifting retirement incomes. Because of super, Australia will spend proportionally less on the aged pension in 40 years – despite a doubling of over 65s by 2063 and a trebling of those aged over-85.  

In fact, super is already easing the cost burden of the pension. APRA’s superannuation bulletin has confirmed that super funds already pay out more than double in benefits than the Age Pension. And about half of the nation’s newly retired (those aged between 65-69) have enough super savings and private savings so that they do not qualify for the pension. Modelling commissioned by Industry Super Australia found that abolishing super in favour of a beefed-up pension would blow a $100 billion hole in the Budget by 2058.

This performance is world-leading. The IGR shows by 2035, among 38 OECD countries Australia will have the lowest public spending on pension by GDP. By the 2060s, we will be spending 80 per cent less on the age pension by share of GDP than the average OECD nation – and half the rate of the next nearest country. The IGR also projects that the proportion of retirees on the pension will be 15 per cent lower than it is now.

With the legislated rise of the super guarantee to 12% and the system maturing it is expected that individual balances will continue to grow, now the average Australian retires with about $360,000 – but today’s average 30-year-old is expected to retire with $500,000 (in inflation adjusted dollars). 

With more Australians reaching retirement age and balances growing, funds are now focused on the need to create smooth pathways to retirement. Industry SuperFunds welcome the Government’s plans to consult with funds about on retirement spending, and are committed to collaboratively exploring how the system’s policy settings can best cater to needs of the growing retiree cohort.