With the Turnbull government intent on enshrining the purpose of superannuation in legislation, it may be time to start thinking about how much superannuation is "too much", says Tria Investment Partners.
In the latest Trialogue article, superannuation consulting firm Tria Investment Partners posed the question: Is $1 million in superannuation too much?
Tria began with the assumption of the Financial System Inquiry, accepted by the government, that the starting point for a definition of superannuation will be "to provide retirement incomes to substitute or supplement the age pension".
"But, let’s also consider what’s not included – namely, that super is not intended to be a concessionally taxed vehicle for intergenerational wealth transfer," said Tria.
"This acknowledgement might pave the way for further reductions in concessions for members with higher balances or incomes."
The popular notion is that retirees need a balance of $1 million or more for a comfortable retirement, but that could provide an income of around $65,000 per annum, said Tria.
"Being tax free, that’s the equivalent of an annual salary of about $95,000, more than $18,000 pa in excess of average wages [according to the Australian Bureau of Statistics]," said Tria.
The Association of Superannuation Funds of Australia (ASFA) Retirement Standard states that an income of $43,000 per annum will provide a single person with a comfortable (but not luxurious) retirement, said Tria.
"For example, it allows about $5,000 per year for travel – almost enough for an annual European river cruise," said Tria.
"To achieve an income of $43,000, a single person needs to draw down $20,000 per year from super, on top of the full Centrelink age pension," said Tria.
"A retiree can achieve that drawdown amount – and therefore a comfortable retirement – with a well-managed balance of around $310,000.
"And the good news? Within the decade the average person who has worked full time since the system began in 1992 will actually have that balance or more," said Tria.
But Tria was quick to stress it is not proposing a limit on super balances of $300,000.
"The benefits for individuals and the nation of encouraging super accumulation are indisputable and higher balances substitute, rather than supplement, the age pension," said Tria.
"But we should encourage people towards an achievable target of $300K or so and be clear about the difference it can make to the standard of living of an average retiree."
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