Our Real Super Savings

If all super fund members (ignoring pensioners) consolidated their multiple accounts, Rice Warner calculates that the average account balance of $50,300 as at June 2015, would rise to approximately $90,000 – an increase of 79%.

Out of a total population of 23.8 million, 17.7 million Australians hold at least one account within the Australian super system. Of these, 11.7 million are currently employed in some capacity, while 2.2 million are retired. The 17.7 million fund members hold 29.9 million accounts, largely reflecting a widespread tendency to join new default funds upon changing employment yet holding on to existing fund memberships.  Some people will also hold multiple accounts for legitimate reasons, for example to maintain insurance cover that they held in a previous fund.

It is difficult to assess the adequacy (or rather the inadequacy) of Australia’s retirement savings by concentrating solely on average member ACCOUNT balances, not the average MEMBER balances.

Yet even by focusing on member super savings across multiple accounts, average super savings at common retirement ages will still not provide a so-called “comfortable” standard of living in retirement – far from it.

In the 60-64 age group, Rice Warner calculates that the average member balance was $212,000 in June 2015 against an average account balance of $165,000.

However the December quarter ASFA Retirement Standard report calculates that a single 65-year-old, home-owning retiree would need savings of $545,000 to provide a “comfortable” standard of living – taking into account the Age Pension. This is a shortfall of $333,000, even based on the higher average member balance.

And Individual members who focus on their full super savings may feel more of an incentive to save more for retirement and to consolidate their multiple accounts.

Rice Warner research confirms that multiple accounts are most prevalent among industry fund members and least common among SMSF members.

Consider how full consolidation of accounts would affect different fund sectors, counting pre-retirement and retirement assets.

Note: that SMSF accounts are not published by the ATO but rather the number of funds and number of members.  Some SMSF members will have multiple accounts within their SMSF (e.g. TTR accounts), or with an APRA fund (e.g. for insurance).

The gap between the average ACCOUNT balance and average MEMBER balance increases with age as members accumulate multiple accounts, reaching a peak when members are in their mid to late-thirties. Then the gap just as rapidly reduces with age to effectively close when members reach the 65-69 age group.

For instance, members aged 20-24 have an average account balance of $5,500 against an average member balance of $9,500 – a difference of 73%. By the time they reach 35-39, the average member balance is $83,300 against an average account balance $36,600 – a difference of 128%.

This research underlines why government, super funds and fund members need to look beyond bare statistics giving average account balances if we are to properly confront the inadequacy of Australia’s retirement savings.

Rice Warner – 31^st March 2016.