Superannuation assets grow despite the demographic wave of retirees

Today's workers will retire with more.

Today's workers will retire with more. Photo: Getty

Superannuation fund assets continue to grow dramatically, with the latest available figures from APRA detailing that overall superannuation balances in all types of funds grew by 3.8 per cent in the December quarter to total $3.7 trillion.

A growing workforce, together with a strong propensity for Australians to make their own super contributions, resulted in overall contributions to super increasing 8 per cent to $42.2 billion over the quarter.

The strength of the labour market helped super guarantee payments rise 3 per cent to $34 billion in the quarter.

That figure was 13 per cent higher than the previous year, a rise contributed to by a 0.5 per cent rise in the super guarantee to 11 per cent.

  Total superannuation assets December 31 2023

Strong returns on superannuation assets were also an important factor for growth over the period with APRA-regulated assets growing by 4.3 per cent over the period.

Contributions from employees were also significant with super fund members contributing $8.2 billion in the quarter, a rise of 11.7 per cent, and $42.7 billion in the year ending December 2023.

Over the December year, total contributions increased by 11.7 per cent to $172.6 billion.

Employer contributions increased by 13.0 per cent over the year to $129.9 billion.

Member contributions increased by 8.0 per cent over the year to $42.7 billion.

The days of self-managed super funds outgrowing APRA-regulated funds appear to be over, with SMSF assets growing by 6.9 per cent to $913.7 billion while APRA-regulated funds incresed by 11.6 per cent to $2.568.1 trillion in the December year.

However wealthy people are still choosing SMSFs with 27,700 funds created in the June 2022 year.

At that point the average SMSF balance was $1.5 million, compared to $410,800 for the average APRA fund for those reaching retirement age.

Superannuation Benefit Payments

The superannuation system is managing to fund the increasing number of Australians retiring, despite the extra costs of that on funds.

The rising number of retirees lead to a 21.5 per cent increase in benefit payouts for the year with a total of $111.1 billion going to members.

For the quarter benefit payments totalled $28.4 billion for the quarter. They increased by 21.5 per cent to $111.1 billion for the year.

“This increase is mostly attributable to a 26.3 per cent increase in lump sum payments. Total benefit payments for the quarter comprised of lump sum benefit payments of $15.5 billion and pension payments of $13.0 billion,” APRA observed.

Although lump sum payouts increased, they do not imply that retirees are cleaning out their super balances in one swoop on leaving the workforce.

This is demonstrated by the fact that the average member aged between 65 and 74 holds balances averaging $410,800, according to the Association of Superannuation Funds of Australia.

Net superannuation contribution flows

Also overall superannuation flows remain positive despite the 21.5 per cent jump in superannuation payouts for the year.

This has to do with two factors.

One is the overall increase in the workforce and the consistent rise in super guarantee payments, which are targeted to hit 12 per cent of wages by mid-2025.

Secondly, retirees are not taking large amounts out of super at the moment.

“Retirees today don’t have big balances because if you are retiring now it means you worked in periods before compulsory super was introduced or at times when the super guarantee was significantly lower than it is now,” said Ian Fryer, research director with Chant West.

There is another significant factor why retirement balances are holding up while the population ages – conservatism.

“Probably about half of all retirees are drawing down only the minimum requirement from their super,” Fryer said.

For under-65s the minimum drawdown rate is 4 per cent and from then to 74 the rate is 5 per cent.

Growth for retirees

Given that super funds averaged a 9.5 per cent return for 2023, many retirees will only be drawing down half that rate.

As a result their super balances are still growing despite their withdrawals.

Pension withdrawal levels will be higher in a decade or two because those retiring then will have larger balances, and the demand for government pension payments will also be reduced as retirees become less reliant on the age pension.

That will insure the country against an ageing population.

“In every country there’s a demographic wave of retirees coming through, but Australia has a superannuation system that will do a lot of the work of handling that situation for us,” Fryer said.

The New Daily is owned by Industry Super Holdings

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