One of the problems of the Australian superannuation system is the way it is reported. The majority of Super Funds give out annual statements which merely state the total amount of the fund.
As the years go by and the fund amount grows, this statement breeds pension complancey within the population. When an employee in their forties gets a statment telling them that they have $150,000 in their Super Fund, this appears to be an enormous sum. It’s probably more than he has ever had in his life.
As far as he’s concerned, his retirement is sorted. Then, when he comes to retire at 60, and the fund has reached $350,000 , he is shocked to find that this will only buy him an income of around $22,000. Suddenly, and far too late, he realised that he can’t retire and will have to boost retirement saving significantly or augment it with extra savings outside the Super structure if he is to have any chance of having a comfortable retirement.
The problem is that the realisation of just what the Super fund can buy comes far too late in the employment cycle. If he had been informed earlier, the employee may have set aside more over the years. With the benefit of compound growth, it would have been far cheaper for him to build the fund into something high enough for him to achieve his retirement goals.
This is why the Australian Institute for Actuaries last week called for Superannuation Funds to be compelled to provide retirement income projections yearly to all Super Funds members. They believe that the income projections would force employees to face up to the level of savings they need for a comfortable retirement at a much earlier stage and would lead to people topping up their retirement savings earlier in their career.
It’s hard to see why it has taken so long for the Australian government to reach this point. A lot of other countries already enforce regular statments giving the information to employees to ensure that they are fully aware of their retirement position while there is still time to remedy the situation.
It is rumoured that the new government is already preparing to go down the route of mandatory statements and that government actuaries are working on the projection rate regulations to ensure that statements from different Super Funds can easily be compared by employees.
However, if it is to be truely sucessful, they need to ensure that the projected income is projected back to show it’s purchasing power in today’s money. Without this, the employee will still think he is going to be rich and the reality of the effect of inflation will completly pass him by.
The governement should move fast. The sooner Australians get this information, the sooner they’ll wake up to the reality of their retirement position. And this has got to be good news for everyone.