Superannuation needs another 30 years before it matures

Australians’ superannuation wealth has grown beyond $3 trillion but still needs a few decades to get into full stride. Here’s why.

It’s almost 30 years since compulsory superannuation was unveiled in Australia, but many critics treat it like a problem child.

Not worth it, some say. It wastes money by giving huge tax breaks to the rich and robs workers of their rightful wages, say others.

It annoys me when high-income politicians and academics have a crack at super without considering the big benefits it provides to millions of Australians who have little else in the way of assets.

In August 1991, the federal budget outlined plans for the compulsory superannuation guarantee and set Australians on a path towards a combined nest egg that today totals more than $3.1 trillion.

Despite this huge growth, super is still a long way from maturing and still has about 30 years until savers enjoy its full benefits.

That’s because when compulsory super started in the early 1990s bosses only had to pay 3 per cent of their workers’ wages into super.

It reached 9 per cent in 2002, 9.5 per cent in 2014, then 10 per cent this month, and is legislated to climb to 12 per cent by 2025.

Today’s workers have experienced less than 20 years of super contributions at 9 per cent or more, while retirees had even fewer years. Future generations will fare much better, with someone joining the workforce today likely to have almost 50 years of full super contributions.

Superannaution savings are set to multiply in the decades ahead.

Within 20 years, Aussies’ combined super balance is forecast to eclipse $10 trillion. That’s money that will be invested in our companies, infrastructure and other assets, and is much better than having two-thirds of bugger-all. Median super balances for Australians aged 55 to 64 are about $185,000 for men and $120,000 for women, according to industry group ASFA.

While that’s not enough to give them a comfortable self-funded retirement and won’t replace the age pension, it provides much-needed dignity and support.

A single pensioner currently gets about $24,800 a year – equating to just over $475 a week. Adding an extra $100 or $200 a week from super is a huge bonus for many retirees, and I’ve seen the positive difference it makes to mindsets and lifestyles.

When our superannuation system eventually matures in about three decades, the benefits will be even bigger.

If left to their own devices to save for retirement, a majority of people wait until it’s too late. Money stuff scares many of us, so we ignore it, and suffer the long-term consequences.

Compulsory super overcomes this hurdle, and by the time workers reach their forties and fifties they’re sitting on a nice nest egg that they otherwise wouldn’t have built.

Critics who say super tax breaks are too generous for the wealthy do have a point.

For years, seniors could hold millions of dollars in super pensions tax-free, but that tax break was tightened in 2017 with the introduction of caps of $1.6m per person, now $1.7m after being indexed higher on July 1.

Wealthy retirees who have $3.4m in super plus other assets probably wouldn’t mind paying a bit more tax on their nest eggs, but we shouldn’t punish the strugglers simply to make a point and weaken superannuation.

Hopefully, it’s given the time to mature in peace.