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Australia’s superannuation system to surpass $9 trillion by 2041

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Total superannuation assets are projected to almost triple to over $9 trillion in 2041, from $3.4 trillion today.

Australia’s superannuation landscape is poised for continuous growth, with total assets said to surpass $9 trillion within the next two decades.

According to Deloitte’s new Dynamics of the Australian Superannuation System report, current growth has persisted in the face of COVID-19-led market volatility driven by both contribution inflows exceeding benefit outflows and robust investment returns.

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But, looking forward, some funds are expected to flourish more than others, mostly owing to the Hayne Royal Commission and the resulting product closures and remediation exercises.

As such, while industry funds are expected to balloon on the back of their strong current positioning and lower fees on average, growth in the retail sector is expected by virtue of existing scale but at a more subdued pace.

SMSFs, on the other hand, are tipped to decline in market share in the next two decades as their older demographic transitions to retirement.

Commenting on Deloitte’s findings, the firm’s consulting partner, Andrew Boal, said: “It’s no secret that industry funds are now the largest pre-retirement sector, and this position will gradually strengthen into the future.”

“We expect the Your Future, Your Super package will favour industry funds, as most young people joining the workforce for the first time are likely to join an employer whose default super arrangement is an industry fund," Mr Boal explained.

“Retail funds will also continue to grow, but not as strongly, reflecting the gradual remediation of issues raised by the Royal Commission, progressively winning back the trust of consumers, and addressing underperformance issues."

Mergers on the rise

Commenting on the significant merger activity between funds in recent years, Deloitte’s national superannuation lead, Russell Mason, pointed to continued consolidation, particularly over the next five to 10 years.

“Funds that fail to reach scale or underperform relative to their peers will struggle to survive unless they can transform their businesses, and quickly, and we expect to end up with a modest number of very large funds that will increase their foreign investments due to their size and the relative size of global opportunities compared to the small Australian market,” Mr Mason said.

Funds as investors

As for their investment activity, Deloitte predicted total fund investment in Australian equities to increase from 34 per cent of total ASX market capitalisation today to 42 per cent by 2041.

“Across superannuation funds, about two-thirds of assets are invested in ‘growth’ asset classes such as equities, property and growth alternative investments. And a high percentage of assets invested in equities are in Australian equities,” Deloitte’s consulting principal, Diane Somerville, revealed.

Deloitte noted that Australian equities remain attractive to superannuation funds for many reasons, including the dividend imputation system which allows super to pocket refunds of excess franking credits on franked dividends, boosting overall investment returns. 

But super's growing interest in the ASX is, however, expected to carry some challenges, with Ms Somerville questioning the ASX’s ability to support this level of demand.

Australia’s superannuation system to surpass $9 trillion by 2041

Total superannuation assets are projected to almost triple to over $9 trillion in 2041, from $3.4 trillion today.

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Maja Garaca Djurdjevic

Maja Garaca Djurdjevic

Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.

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