The latest analysis of the Australian superannuation system has predicted inflows from the sector into domestic shares could challenge the capacity of the Australian Securities Exchange (ASX) in 20 years’ time.
Chartered accounting firm Deloitte’s “The Dynamics of the Australian Superannuation System – the next 20 years to 2038” report predicts assets held by the industry will grow to $10.2 trillion over the next two decades and if current allocations remain the same ASX holdings will be dominated by retirement savings.
“The report points out that the impact of a $10.2 trillion asset allocation on the Australian share market could be considerable and dominate the ASX given there is a high percentage of assets currently invested in equities, of which a significant proportion are domestic (Australian) equities,” Deloitte superannuation lead partner Russell Mason said.
“Currently the total investment by superannuation funds in Australian shares comprises around 35 per cent of the total market capitalisation of the ASX. If they retain the same percentage allocation, this will increase to more than 60 per cent by 2038 – almost double the current allocation – and so dominate the ASX’s holdings,” he explained.
“A key issue will be whether there will be enough capacity in the ASX to support this level of demand from superannuation funds, given that there are also individuals and companies seeking to invest non-superannuation monies.”
The paper was drafted on the assumption the superannuation guarantee will move from its current level of 9.5 per cent to 12 per cent by 2025.
The report also predicted an increase in post-retirement assets despite individuals drawing down their retirement savings during this phase of their lives. To this end, Mason warned this forecast could have implications for the review the government is currently conducting into the Australian retirement income system.
“Given that there are no maximum constraints on the pace of members drawing down their benefits in retirement, if retirees are forced to draw down their retirement savings more quickly than expected in a low return environment, the projected asset growth to more than $10 trillion by 2038 would slow,” he said.
“Commensurately, the call on the government for the aged pension would increase. To that end we anticipate this will be an important matter to be considered by the government’s recently announced Retirement Income System Review.”
Previous Deloitte analysis had predicted SMSFs would dominate the post-retirement space in the year 2035.