Of the many topics on superannuation, one issue is more relevant than any other – adequacy. Despite all the talk about different elements of the super system, the prime objective is for a good proportion of the Australian community to save enough to completely fund their own retirement.
Discussions over adequacy have been coupled with warnings over sequencing risk, where retirees may run out of money due to a reduction in their assets as a result of market downturns.
There has been no better illustration of the relevance of both concepts than the volatility in all equities markets since the start of the year, and news reports constantly remind us how many billions of dollars in retirement savings have been wiped out after regular falls in the stock market.
While these are real risks facing retirees, some research and associated commentary as well as proposed government policy seem to have seen these concepts take a back seat in recent weeks.
A good example was CSIRO research released last month, from which the main takeaway message was that many Australians have saved too much to fund their retirement.
In effect, the study found retirees have been conservative in their spending and because the taxation of super is so generous and individuals are keen to take advantage, they end up with unused accumulated savings that make them wealthier than when they retired.
The CSIRO said the research is supposed to encourage more investigation into spending in retirement and the appropriate investment products individuals should use during this life stage. But it must be questioned as to what logic is being applied and what outcome is being sought.
Is the CSIRO suggesting we can accurately predict when we are going to die so we can better tally how much we save to fund our retirement?
Surely, the only way to guard against both longevity and sequencing risk is for individuals to maximise the amount in their super fund when they retire.
The government also seems to be doing its best to undermine the adequacy objective, with reports it will be capping superannuation guarantee (SG) contributions at the current rate of 9.5 per cent of employee salaries.
Various studies into adequacy have indicated 9.5 per cent compulsory contributions will result in most Australians relying on the age pension in some form, whereas a 12 per cent SG may just get people across the self-funded retirement line.
Coupled with this is the constant chatter out of Canberra expressing the desire to reduce the super tax concessions designed to incentivise more super contributions from those on income levels that enable them to do so.
The only conclusion we can draw from all this evidence is that adequacy is no longer a priority in the current super framework.
Unfortunately, the reality is we cannot achieve self-funded retirement for most Australians, and in turn a reduced reliance on the age pension, until all parties again focus on this critical issue.
