The total assets in the superannuation system are expected to continue to grow strongly over the next four decades, according to projections from the latest intergenerational report.
In the 296-page report, which was released in full by Treasurer Jim Chalmers on Thursday, total super balances were forecast to increase from 116 per cent of Australia’s gross domestic product (GDP) during 2022–23 to approximately 218 per cent of GDP by 2062–63.
“The ongoing increase in the superannuation guarantee rate to 12 per cent from July 2025 means the system should continue to see strong growth for several decades,” the intergenerational report 2023 predicted.
Australia’s super system is “maturing”, the report suggested, with approximately 17 million Australians collectively owning around $3.5 trillion in super assets.
“By the mid-2040s, most people retiring will have been receiving the superannuation guarantee at 9 per cent or more for the duration of their working lives,” it said.
“The superannuation system provides an important pool of assets to fund retirement income and represents an important source of capital in the economy, contributing to the strength of financial markets through capital deepening.”
As revealed by the Treasurer earlier this week, the number of Australians aged 85 and over is expected to more than triple over the next 40 years, while the number of people aged 65 and over is tipped to more than double.
“An ageing population and maturing superannuation system will see more Australians in the retirement phase and receiving income from superannuation,” the report stated.
“Future retirees will have higher superannuation balances because they received the superannuation guarantee for a longer portion of their careers and at a higher rate. In addition, they will benefit from greater investment earnings compounding over a longer period.”
The intergenerational report indicated that, as balances continue to increase, super will become the primary source of retirement income for many Australian retirees in the future.
Subsequently, government spending on age and service pensions is projected to drop from 2.3 per cent of GDP in 2022–23 to 2.0 per cent of GDP in 2062–63.
“The age pension is among the Australian government’s largest spending programs, and this trend will contribute significantly to the sustainability of the budget,” the report said.
“The spending decline will occur despite Australia’s ageing population and the almost doubling of the number of people over age pension age by 2062–63.”
However, super tax concessions as a proportion of GDP are also expected to increase from approximately 1.9 per cent in 2022–23 to 2.4 per cent in 2062–63. The report projected that these concessions will overtake age pension expenditure sometime in the 2040s.
“The increase is driven primarily by earnings tax concessions rising from around 1.0 per cent of GDP in 2022–23 to 1.5 per cent of GDP in 2062–63,” it said.
The intergenerational report also referenced the government’s plan to double the tax on earnings of super accounts with balances over $3 million as announced earlier this year.
It suggested that this measure “improves sustainability of the superannuation system through a stable reduction in total superannuation tax concessions over the projection period”.
In terms of other forecasts, the report said that drawdowns from super are expected to increase from approximately 2.4 per cent of GDP in 2022–23 to 5.6 per cent of GDP in 2062–63.
“The development of funds’ strategies to assist their members in maximising retirement income, managing longevity risk required, and providing access to capital under the Retirement Income Covenant and the increasing proportion of members in the retirement phase is expected to impact patterns of how superannuation is drawn down in retirement over time,” the report noted.
Treasury to consult on use of super
Following on from the intergenerational report, InvestorDaily understands that Treasury is expected to release a consultation paper in the coming weeks in an effort to strengthen the accessibility of retirement products.
Commenting on this, the chief executive officer of the Financial Services Council (FSC), Blake Briggs, said: “Eight hundred Australians are retiring every day, and the government is right to prioritise action to make sure these consumers can choose from a range of products consistent with superannuation’s promise of delivering income for a dignified retirement.
“The Retirement Income Covenant requires superannuation funds to formulate strategies to optimise retirement outcomes for members, however, the FSC believes this framework will be more successful if the government removes regulatory barriers that are inconsistent with the covenant.”
The FSC also commended the intergenerational report’s recognition of “the important role of superannuation in addressing Australia’s financial pressures over the long-term”.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.