The Australian Super Fund Association (ASFA) loves to scare Australians into believing they will retire poor and will have to work until they die. Running this narrative helps the super industry gain policy favour, such as raising the compulsory superannuation guarantee, in turn boosting the amount of funds under management and fee revenue for the industry.
A case in point is ASFA CEO Martin Fahy’s testimony to the ABC over the weekend, which claimed home owning couples need to spend $63,799 a year to retire comfortably, which is way beyond current superannuation savings:
For Australians to retire comfortably, couples aged 65 need to spend around $63,799 a year, and singles $45,239, according to estimates from the Australian Super Fund Association (ASFA).
This translates to having a lump sum of about $640,000 for a couple and $545,000 for singles, assuming they own a home, ASFA CEO Martin Fahy told the ABC.
“Given household budgets for a couple that own their home, that’s the number that we think you need to have a dignified retirement where you can run a car and pay for health insurance, have an occasional meal out, etc,” he said.
“That’s something that we think people can aspire to.”
Earlier this year, Super Consumers Australia (SCA), which is attached to consumer organisation Choice, researched what retirees actually needed in retirement. It found that the superannuation industry’s estimate of a ‘comfortable retirement’ is too inflated:
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“When we reviewed a lot of the commentary on how much you need to save for retirement, we see this figure coming up a lot. It’s often from groups or individuals that might have a self-interest in you having more and more savings”…
“They are all, of course, clipping your ticket in fees for managing that money…
What SCA’s research found was that for a couple to have an income of $55,000 a year (which their research showed was an average level), they would need to have savings of $360,000.
A single person would need $259,000 to maintain an average income of $37,000…
It is important to point out that ASFA’s definition of a “comfortable retirement” is well above what a typical Australian takes home in pay.
According to the Australian Bureau of Statistics (ABS), the median Australian employee earned $1,200 a week ($62,400 a year) as at August 2021:
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The median Australian earns $62,400 a year before tax.
These are gross earnings, however, with the typical Australian employee also needing to deduct around $11,000 in personal income tax and the Medicare Levy.
Unlike most retirees whom own their home outright, the median working Australians also must pay rent or a mortgage. Many also have the financial burden of supporting children.
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It is not surprising, then, that modelling from the Grattan Institute found “that the vast majority of retirees today and in future are likely to be financially comfortable” with retirees “less likely than working-age Australians to suffer financial stress”:
Retirees are the most financially comfortable cohort in Australia.
To cut a long story short, ASFA’s ‘comfortable retirement’ estimate is far more luxurious than most Australians enjoy over their working lives. It is a blatant scare campaign designed at pushing policy makers and members to funnel more money into the superannuation system, which enables the industry to grow funds under management and earn fatter management fees. It is rent-seeking pure and simple.
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The superannuation industry will continue to talk its book about a ‘comfortable retirement’ as long as there is easy money to be made.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
