Can you believe it’s been 30 years since Australia went down the road of compulsory superannuation?

It was meant to deliver a better and more secure retirement than the age pension.

Paul Keating, as Treasurer, was the architect of the modern-day superannuation system and, as Prime Minister, oversaw its legislation being introduced in 1992. 

He said back then, “for the first time in our history…ordinary Australians will be able to build a decent nest egg for their retirement.”

So, has the system delivered what it was supposed to do?

National Seniors and Challenger Limited have released new comprehensive research into retirement income. The report titled ‘The evolution of retirement income: A 2022 snapshot', includes the effectiveness of compulsory super. 

• 75 per cent of retirees surveyed are satisfied with their financial security. 
• 85 per cent of people had accumulated super for their retirement. This proportion was lower for women (82 per cent) compared to men (88 per cent).
• Around half of those surveyed wanted to preserve some of their retirement capital, but spend some of it to fund their retirement.
• The intention to maintain most or all of the capital was significantly more likely for men or those who wanted to help family or friends access aged care.
• The most common reason for maintaining retirement capital was for medical and health needs.
• While 81 per cent owned their own home and 11 per cent owned a home with a mortgage, just 2 per cent used their home equity in retirement.
• Two-thirds said it was important to leave their home as a bequest. 

The report also coincides with the implementation of the retirement income covenant in July this year. Legislated by the government, the covenant ensures superannuation trustees develop a retirement income strategy to maximise retirement income for their members and properly manage associated risks. 

The Self-Funded Retirees Association has also found superannuation to be hugely beneficial, resulting in fewer people claiming the Age Pension. For more about this and how much the Association thinks you need to retire on read the next item in this edition, Retirement spending is up.

CEO and Director of Research at National Seniors Australia, Professor John McCallum, said: “Older Australians told us in the survey that the compulsory super system had enabled them to enjoy a comfortable retirement. It is truly a guarantee for a better later life.”

“The report shows us 90 per cent of retirees have used super as their main source for accumulating retirement capital,” said Professor McCallum.

“In short, compulsory super delivers what it was designed for: to provide retirees with an income that maintains their working life standard of living.

“Retirees increasingly need to understand that their retirement savings are not so much a nest egg. It is a means of achieving the best standard of living possible during their retirement years,” said Professor McCallum. 

Challenger Limited’s Head of Retirement Income Research, Aaron Minney, agreed: “Super has been a major success that prepares Australians for retirement.”

However, he noted a reluctance of retirees to increase the drawdown of their super to further improve their lifestyle.

“The National Seniors survey shows that retirement income reforms could not have come at a better time. Many retirees cut back on their lifestyle rather than spending their savings. Hoarding the nest egg means they are missing out on some of what they could enjoy,” he said.

The survey showed the most common reason for preserving retirement capital was to have money available for future health and medical costs. 

“Close to 84 per cent of respondents nominated this as their reason for hanging on to their capital,” Professor McCallum said.

Having money available to cover other unexpected expenses or emergencies was also a priority, with approximately 70 per cent of people setting aside rainy day funds. 

The report shows a disparity remains between men and women when it comes to retirement income.

“On just about every score on superannuation, women trail men”.

“More men enjoy a comfortable retirement from super. More women than men have super balances so low, they are reliant on the age pension,” Professor McCallum said.

The survey also highlighted the importance of home ownership in retirement.

“Comfort in retirement is higher among those who own their home compared to retirees who don’t. At older ages, security of a home was more important than high savings levels in achieving comfort,” Mr. Minney said. 

However, the survey showed despite easy access to home equity in retirement, only two per cent of those surveyed said they had accessed their home equity. Two-thirds said it was either somewhat or very important to leave their home as a bequest upon passing. 

The survey was taken just ahead of the Retirement Income Covenant coming into effect and highlights the benefit of the reform. 

“Retirees and pre-retirees need better access to financial advice and user-friendly tools that account for the complexity of intersections between the retirement income system and housing, health, aged care and employment circumstances. 

“Further, super funds need to have a strategy for managing the financial risks facing retirees and help them maximise their income in retirement,” Mr. Minney said.