Australia has more than $3.5 trillion in superannuation assets. It’s a lot of money, but most of that belongs to just a few of us. Just 5% of taxpayers own more than 45% of all super, and one-third own 90%.
Is that bad? Or is it what you’d expect in a system where people accumulate assets slowly — that the young have little and the old have a lot?
I got my hands on Australian Tax Office data to answer questions like this. The ATO usually shares the information with researchers, but I asked and I received. It means I have 2% of all tax returns from 2020-21 right here on my computer. Anonymised, of course, with famous people removed, outliers blunted, data lightly “salted” via randomisation, etc. But still, there’s a 1 in 50 chance I have your numbers here on my machine.
It is fascinating in many ways. One angle I’ve been diving into recently is superannuation balances. I’m in my working prime and putting as much as I can into super, while worrying if it is enough.
The question of how much super is enough is important, and so is the question of how the system should be designed. Super is very tax beneficial. Do the tax breaks help us all equally? Or do the super system’s advantages accrue to just a few?
Let’s have a look at a simple question. Which age group has the most super?
The old have a lot more superannuation assets than the young. But are all grey nomads equal? How is super distributed?
We can zoom in on the 60- to 64-year-old age group and then break it into 20 groups, each containing 5% of taxpayers, from least super to most. This chart shows that the top group has far more than the median.
This looks pretty unequal. But it’s not the whole story. On average, men earn more than women and put away more super. So let’s break it down further.
The distribution is very unequal when filtered by male and female. Some people have used super to build up enormous war chests, while others have enough for maybe a small annual stipend and will certainly be relying on the pension. The median super balance for a man is $200,000; for a woman, $150,000.
In fact, superannuation amounts are more equal at younger ages. Here’s the equivalent chart for those aged 30-34, again broken into 20 groups of each gender, each containing 5% of taxpayers of that gender in this age group. What you see is a less steep distribution. Super is more even at this point in life (and balances are, on average, much lower — if you have $50,000 put away at this stage, you’re doing better than average).
If the 60-64 age bracket is more uneven than 30-35, well, 70+ is worse. At that age, about half of the people in this data have drained their super, while others are experiencing returns so much higher than their spending that their balance keeps rising relentlessly. If you have $4 million making 6% a year, you need to spend $240,000 a year just to stop your balance from rising.
At this point, we might as well show a chart with every age group. Note that the balances of the top end of the distribution for the elderly are so high they make every other group look puny by comparison.
But are there different levels of inequality at different age groups? It sure looks like it, but is it real or a trick of the eye? You can measure inequality with something called the “Gini coefficient”. A Gini of 0 is perfect equality and 1 is perfect inequality. Adjusting by this measure, our super system is closer to inequality than equality, and it gets worse the older you get. You can see the results in the next chart.
On this one I’ve set the axes to fit every chart, emphasising the shape of the distributions within each age group, rather than the differences between each.
You can see that by 70 and over, half of the taxpayers in the dataset have no super at all. Others have a bountiful balance that seems to keep going up. (The under-20s is an interesting outlier. It has me wondering if a select few parents are stuffing their kids’ super funds.) It looks like it’s a jungle out there, with some pensioners struggling to eat while others leave millions to their kids.
You sometimes hear people saying you need to save $1 million for retirement. The reality is that very few people manage that — perhaps 15% of men and 10% of women aged 65-69. But among them, many exceed that figure in grand fashion. Far more normal is to hit perhaps $250,000 in super at age 60-64, then start using it up.
The charts show that the pension is going to be a big part of Australian life for a long time yet; super is economically important and a political darling, but defending the pension will still win a lot of votes.
Is Australia’s superannuation system broken, or working as intended? Let us know by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
When discussing the superannuation balances of those in older age groups (such as 60-69) there is another important consideration to be aware of. Superannuation existed before the universal scheme introduced by Keating, it’s just that it was largely confined to public servants, employees of large companies, and high income earning “professionals”. So, a group of already financially well-off individuals in this age group had a head start of up to 15 years on others who were brought into the superannuation system in the 1990’s.
Something else which is often overlooked is that a good many of those in the pre 1993 superannuation cohort were members of defined benefit superannuation schemes and, so, not subject to the market vagaries which affect the returns, and hence balances, of most of today’s superannuation funds. In my one case, I was beneficiary of this in my later 30’s with a large defined benefit rolled over into a new accumulation fund as a result of a retrenchment. It was a company fund, and the company was encouraging its employees to move to an accumulation fund (thus relieving itself of the investment risks). Luckily for me, I hadn’t made the move.
Yep, my partner at that time was working in the PS, and was being ‘encouraged’ to move to the accumulation fund. I told her, you don’t need the advice of a accountant or financial advisor, ask yourself is your employer doing this for your benefit?
Thanks Jason, that is a great, detailed analysis. One could say that it shows our super system is working exactly as the rich and powerful always intended, by super-charging the wealth of the rich and powerful, while reducing tax revenue that a federal government could use to do important things for all of us – like climate change mitigation and building public housing. (it wasn’t in your brief to point out that tax foregone on the super concessions is now about $50B pa; while perhaps another $30B pa goes in fees to the parasites who run the show).
PJK was undoubtedly well intentioned when he created the scheme, but his legacy is a catastrophe for our “common wealth”.
Yes PJK was undoubtedly well intentioned – the catastrophic legacy is down to Costello’s changes.
Yes, but nefarious forces blame Keating and/or ALP in their long term campaign to trash the super system on behalf of some employers and wealthy influencers; ironically targeting above median age voters i.e. retirees……
Yep. And I correct them at every opportunity.
Some issues are obvious, others are non sequiturs, but much needs to be tweaked over time, especially rolling back LNP measures and loopholes to benefit a minority of wealthy, and increase the SCG eventually up to 17%?
However, for context, if we use 1993 as base point, then the benefits will not be seen for any 18 year old then, till 2043 when they reach 68 years of age after working life, and further increases in the SCG Super Contribution Guarantee.
Meanwhile the safety net is full or part pension to supplement many with lower balances and/or low super income in retirement, and taking pressure off state pensions.
Oz generally comes in top 5 globally for future retirement income sustainability due to out dual system of supper &/or universal pension (vs insurance subscription liked to years/level worked), then with the baby boomer ‘bubble’ transitioning to retirement, helps reduce budget transfers due ever increasing old age dependency ratios, till that passes after the ‘big die off’ starting in several years; many nations have absolutely dire outlooks for retirement income due to ignoring future demographics and planning.
In some nations, make sure you buy a small apartment for rental income vs. declining retirement income via state related pension funds due to decline in working age.
Prior to Keating’s reforms superannuation was something reserved for the rich and the public servants. The pension was something paid to the rest and was designed to keep them slightly above the poverty line. Even then the aged pension was the major expense in the budget. Keating’s genius was to see the alternative – employers pay a little more, employees forego a higher wage rise, and the nation gets a huge pool of money that according to the original plan would fund investment while reducing the future burden of the pension.
Then Costello came along and sabotaged it by “delaying” (over and over) the planned increases. Delaying rather than flat-out cancelling because doing so never made any sense so instead there was the repeated refrain of “yes, but now is not the right time”. Then we had the ALP years when the Costello policy was continued while the government concentrated on the GFC.
The latest period of Coalition rule is the one that destroyed the whole employer-based super scheme though. After even more years of “employers (despite constant record profits) just can’t afford it”. And of course there were no pay rises to funnel some into super from the employee’s side. The real knife in the side though was when the Coalition deliberately set up a system to empty out the accounts of the lower-paid by encouraging them to withdraw from the scheme. Everybody knew this was a stupid idea. When you see the zero balances at the young end of the scale, that is presumably one explanation (the other possibly being people who may have never had a job until recently and so haven’t contributed to super in the past).
My point? A national scheme making regular payments from the start of a person’s working life until they retire, funding investment and earning returns during that life, and reducing the amount that taxpayers need to pay up to prevent those too old and knackered from starving in the streets Just Makes Sense! The only argument against it is the objection that some of the funding came from employers and their profits are too important to waste on their former workers. When you look at the track record of the Coalition you see a group who have no interest in the welfare of the majority of the people silly enough to vote for them.
Bolivar, what if you have little or no paid employment during your working life? Unwell? Disabled? Busy being a carer?
What if you are on the minimum wage? – you get minimum super.
What if your boss neglects to make the contributions?
Why not have a fair tax system and guarantee everyone a fair standard of living I retirement?
Again I ask the question. As a high income professional on an income comfortably into the middle six figure range why do I pay more tax in dollar amounts (not percentage, but actual dollar amount) than NewsCorp?
Does NewsCorp actually make a profit on which to be taxed?
Yes, if we stopped the super tax concessions (that go mostly to the rich), we could afford to double the Age Pension.
Absolutely, on concluding paragraph, see many nations which have not planned for the inevitable i.e. increasing old age dependency ratios, tugging on budgets more, but in turn supported by ageing and decline in working age taxpayers….
It’s a terrible idea.
What is it with you guys and using Government to pump public money into the FIRE industry rather than do its job ?
Super accumulations need not provide an un-untaxed jackpot for the inheritors. If the tax concessions that made us oldies rich were re-categorised as “delayed taxes”, then the taxman could close in on the loot as soon as the old codger dies – or makes a lump sum withdrawal. That way the low-tax benefit could only be enjoyed as a pension supplied by the fund, and could only be enjoyed by the old codgers themselves.
My idea precisely. Lump sum: tax it. Something left over after death: balance goes to consolidated revenue.
Except that lump sum withdrawals are just as likely to be spent paying off your mortgage on retirement as doing that round the world trip you’d been putting off.
Residual superannuation does not give an untaxed jackpot for inheritors. If passed on to non-dependants, it attracts a tax which recognises its tax-advantage status during the lifetime of the deceased.
What I find particularly galling is one particular newspaper financial adviser/columnist who refers to this as a “death tax”. Then there are the financial advisers who tell you to cash out your superannuation when your spouse dies. All so you can maximise the inheritance for your kids.
Just one point. Tax office data may not show the complete picture. At 82 I draw the virtually all my retirement income from pensions paid from the two industry superannuation schemes of which I was a member. (In those times it was not possible to carry over superannuation membership from one employer to another and when I changed employers I preserved the benefits in the first scheme and joined the scheme operated by the second employer.)
For those of us in most such schemes tax is not payable on our superannuation benefits once retired and over the age of 60.