We’re all a little bit inadequate


Comment by Penny Pryor

As long as I’ve been writing about superannuation (close to a decade and half), longevity has been an issue. The global financial crisis only heightened the fear of ‘running out of money before you die’.

I’m therefore encouraged when anyone in the industry strikes up a debate and throws in some outrageous statistics and recommendations to draw attention to it.

Deloitte has come out with some numbers this week that show that someone on an average salary would need to put away pretty close to 20 per cent (more for women) of their salary throughout their working life to reach any kind of ‘self-funded’ comfortable standing of living in retirement.

Deloitte were quick to confirm that they weren’t advocating an SG of 20 per cent, merely that they wanted to highlight the inadequacies of the current system.

I understand the numbers, which Deloitte calculated in its latest report on superannuation, were designed to shock and it’s a commendable addition to the discussion, along with talk of lifetime contribution limits and better access to more innovative products.

But how helpful it is to bandy about statistics like an extra 5.5 per cent or 7.5 per cent (above the 12 per cent superannuation guarantee)? Doesn’t it just overwhelm people and perhaps foster further disengagement? 

There is no way that most of us are going to be able to do that and Deloitte knew, and said, that.

The argument then of course is that we all need to catch-up at some point in time and later in life – i.e. when the kids are gone, the mortgage is paid off and there is surplus cash lying around – people should have larger contribution limits to be able to put more away then.

It’s a common argument and one that seemed to make a lot of sense until I started thinking about anyone around me, not in the industry, that would be in a position to be able to do that. 

My fellow Gen Xers mostly started having children in their late twenties or early thirties, they all have mortgages of at least twenty years and probably won’t be kid free for at least another twenty years. That means they won’t be anywhere near financial freedom until their mid fifties at the earliest. 

They might be able to put more in super then but probably not enough to catch up to what they could have done if they’d managed more during their early years. They’ve lost the benefit of compound interest for a start.     

There are also a bunch of small business owners who are planning on selling their business as their superannuation, which is great for them, but for the rest of us, it’s unlikely we’ll be able to dump enough in our super to not rely on the age pension in some form.

And if Joe Hockey has his way, we’ll all be working longer, which would alleviate some of the pressure. That’s great for all of us in white-collar jobs, as most of us enjoy working and want to do it for as long as we can. But anyone with any kind of physical occupation is going to find it difficult to keep tiling, bricklaying or cleaning post 70. 

The system must change and one of the best recommendations in Deloitte’s Adequacy and the Australian Superannuation System – a Point of View report is the one for education from school onwards to foster greater member involvement.

Special superannuation adviser and primary author of the Deloitte report, Wayne Walker, is right. If people can somehow manage to choose a bank for their salary to go into then maybe they could engage more with their superannuation, given some time, effort and the right tools. 

Funds also need to change, and perhaps give members a bit more credit for being able to manage their own risks if they have the products and options to do so.