It may seem hard to believe now that some of Australia’s biggest super funds didn’t offer their own pension products until a decade or so ago. This would have been a reflection of the then much younger age demographics of their memberships.
How things are changing. The latest Superannuation Market Projections report, published this month by independent consultants Rice Warner, points to just how strongly the retirement segment of super is growing in terms of dollars, number of retired members and market share.
Competition between super funds for the retirement dollar can only intensify with the ageing of a large proportion of the population. And the large funds will inevitably make an increasing effort to convince members to stay with the same fund during the accumulation or saving phase into retirement.
Consider a few of Rice Warner’s projections. Over the next 15 years, the number of members with retirement accounts (which include transition-to-retirement pensions) will more than double to 4.5 million. And total retirement dollars in super is expected to grow from $630.8 billion (as at June 2015) to $1.38 trillion (in 2015 dollars) over the same period.
In percentage terms, the value of retirement assets are forecast to make up almost 35 per cent of overall superannuation assets within 15 years – up from a little more than 31 per cent today. It is anticipated that the biggest change will occur in the market share of the superannuation retirement dollars held by the different superannuation fund sectors.
Today, SMSFs hold more than half of the superannuation retirement assets – an estimated share of almost 54 per cent. This is hardly surprising given such factors as the higher average age of SMSF members and their much larger average superannuation balances (members with bigger balances often favour super pensions over lump sums upon retirement).
Rice Warner expects that the market share of retirement assets held by the various fund sectors to change over the next 15 years to:
- SMSFs, 41.2 per cent (53.8 per cent today);
- Industry funds, 18.7 per cent (2.5 per cent today);
- Commercial retirement products, 29.5 per cent (33 per cent today);
- Public-sector funds, 10.6 per cent (9.8 per cent today); and
- Corporate funds, nil per cent (0.8 per cent today).
"The SMSF [retirement] sector will grow less rapidly and consequently lose market share," the report says, "because it has the biggest proportionate share of retirement assets today and therefore experiences the largest proportionate outflows of pension draw-downs. It moves to a position where draw-downs exceed contributions sooner than other segments." The projected loss of market share is described as small.
In sheer dollar terms, as against market share, Rice Warner expects the assets of SMSFs to significantly grow over the next decade and a half – rising from $592 billion (as at June 20, 2015) to more than $1 trillion (in 2015 dollars).
Industry funds are forecast to multiply their percentage of superannuation’s retirement assets by more than seven times from their low base. This is largely because of their current younger membership demographics today and their continuing development of better pension products.
Further, the majority of fund members are expected to remain in the same fund for their accumulation and retirement phases – a positive pattern for industry and commercial super funds.
Also, the growth in the average size of super fund balances provides an increasing incentive for retiring members to take a super pension rather than a lump sum. This is positive for industry and commercial funds.
The overwhelming majority of retiring SMSF members have long favoured pensions to lump sums – another reason why self-managed super currently holds more than half of today’s retirement dollars in super.
The expected growth in super’s retirement segment over the next 15 year highlights the reality that millions of fund members can longer regard retirement as something that will eventually occur sometime in the distance future.
That future is already here for the waves of baby boomers either fast-nearing retirement or already in retirement.
 |
Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment. |
|
