SG gives false hope: Super savings at zero

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Compulsory super is reportedly failing to fulfil its purpose, with an increasing gap forming between retirement expectations and reality.

These are the findings of a new report, Twenty years of the superannuation guarantee: The verdict, written by Professor Simon Kelly for CPA Australia. Kelly examined the effectiveness of Australia’s compulsory superannuation system, and concluded that the system had “failed to deliver on some of its core objectives”.

Increased super balances have lulled Australians into a false sense of wealth, so they are spending more and increasing debt, says the report.

“Their superannuation balances have grown, albeit most likely at the expense of other forms of saving. Despite this, the SG has not closed the gap between retirement expectations and reality.”

While it is technically only a ‘perceived’ increase in wealth due to SG contributions, growing superannuation balances and rising house prices, people are spending more and using debt to fund a higher current living standard – knowing that a super payout is coming in future.

However, the report says that their super balances and the age pension are not enough to cover their expectations, particularly when they have been earmarked for debt repayment or promised to children.

Methods such as downsizing a home are often suggested as a way of releasing funds for retirement, but the report says that this rarely changes a person’s net financial wealth position.

 “It is now 20 years after the SG was introduced, and superannuation savings minus household debt effectively equals zero,” the report concluded.

Commenting on the report, Alex Malley, CPA Australia chief executive, says, “The findings in this report reinforce the fact that Australia’s compulsory superannuation system has, in many ways, failed to deliver on its core objectives.

“Policy measures must be considered to ensure superannuation savings are being invested to be used to fund a person’s retirement. Serious consideration must be given to encouraging income streams in retirement and limiting the amount of superannuation that can be taken as a lump sum.”

Malley says that without change, super savings are likely to be inadequate, expectations will be “crushed” and the age pension will again be put under pressure.

Share your thoughts on Australian's compulsory super system below. Do you think it's a good thing for clients?

  • Let's get real on 5/09/2013 2:18:43 AM

    Maybe look for a job in the industry Superman? Turn a positive into a negative! Otherwise it might possibly be coming across that it is actually your attitude that has deprived you of those things rather than anything to do with 9% SG.

  • Superman on 4/09/2013 1:56:59 PM

    I am one of the two million low income earners. I pay 9% of my wages (it is not employer’s money) in to the so called 1.5 trillion money on paper. Liquidate the thing and it will be worth a third. I got money in 20 odd funds that lives off my hard labour. The 9% has deprived me of a big Maka and a Latte, a partner and a house. My 9% has build up a huge industry; a super industry that employs a lot of people.

  • Stephen on 28/08/2013 4:25:08 PM

    The main problem with super is that the average person over the last twenty years has had more important things to spend money on, eg, kids, the ridiculous cost of housing compared to income and a couple of financial set backs where they had almost no way of not losing money. Without taking in account the couple of financial setbacks over the last 20 years, a person who started with a $50k package in 1992 with an increase of 4% per annum over the 20 years with an average return of 6% would only have $143,000 in their account. The average person also won't be getting much of an inheritance because their parents are living to 90 or older. Super needs to be 20% for 40 years before it becomes enough to be liveable. Can super of half a million today last us to death? Not likely. So this shows that comments made today are more likely scare mongering to make us save for the future. Over time, it could become a good system.

  • Mark Thompson on 27/08/2013 9:45:11 AM

    Maybe if it wasn't so difficult for individuals to top up their concessional contributions at the end of the financial year then people with a bit of spare cash would do so. But no, when SG was introduced personal tax deductions were torpedoed for most ordinary citizens so that Industry Funds would end up as the de facto default funds.

  • chris on 27/08/2013 9:39:29 AM

    Surprise surprise along with sg came the belting up of planners and the previous commssion structures,why on earth would an adviser spend time with a client convincing them to contribute to super when younger clients would not pay for the advice and the preparation of an SOA the size of war and peace one and two. Oh maybe if the Industry funds had a way of paying non industry based advisers for their time it may be different also .

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