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Saving for retirement: the big picture

Superannuation  |  5/12/2016  |   4 min read

Australians are constantly being told they are not saving enough for their retirement. The argument goes that unless you have enough saved in superannuation you will be forced to rely on the Age Pension. But that’s not the whole picture, and ignores other savings and assets that people may have.

Super remains a very tax-effective vehicle for retirement savings, despite constant government tinkering and rule changes. But many households also have assets outside of super. This includes investment properties, personal savings, or shares.

Investors who are approaching retirement may diversify to hedge their bets against regulatory change. The recent passage of the  government's superannuation reforms, and the $1.6 million limit on pension phase accounts is one example of this. The changes, to be implemented on July 1 2017, do not impact most Australians, but they may mean high net worth individuals may have to rethink their retirement strategy. 

The three pillars

Australia’s retirement income system is built on three pillars. There is an income safety net in the form of the Age Pension, compulsory super guarantee payments made by employers on behalf of their employees, and voluntary superannuation savings.

Australians have $2.1 trillion invested in super. But they have as much again invested outside super - $2.2 trillion according to a recent Rice Warner report on investor preferences. And that’s not including the family home or family businesses. It's these external assets that are often overlooked in the national debate about retirement savings. 

So who’s investing and what are they investing in? 

Saving outside super

According to the Rice Warner report, there are big differences in investment patterns outside super, depending on a person’s age and wealth. 

Wealthier investors typically have a higher proportion of their non-super savings in direct shares, direct property and international investment assets. Middle-income investors tend to have more of their savings in term deposits. 

It probably comes as no surprise that investment property is the largest asset class overall, at 42% of total assets, followed closely by cash and term deposits. Property investment peaks between the ages of 35 and 55, when people start reducing risk ahead of retirement. 

Shares represented just 10% of personal investments outside super, although this increases to 19% for the over 75s. It’s possible that older retirees who are living off the income from their investments prefer the higher liquidity and dividend yields on offer from shares compared with rental property. 

Policy implications

The way Australians actually save for retirement is of more than passing interest, it has implications for future government policy. In a recent paper, the Grattan Institute said that savings outside super should be taken into account in policy decisions concerning retirement income. Controversially, the authors argued the Super Guarantee should be frozen at 9.5%, rather than progressively lifted to 12% as planned. At present, both sides of politics support the move to 12%. 

The reliance of Australian households on investment property held outside super also highlights the sensitivity of the recent debate about winding back negative gearing and capital gains tax concessions. This would be a major blow for investors trying to build wealth to provide income in retirement. 

The debate about the adequacy and fairness of super is unlikely to go away any time soon. But it’s important to remember that while super is still a very tax-effective retirement savings vehicle, it’s only part of a holistic approach to retirement income.

For more detailed projections about your retirement income, and how long it may last, please check the Equip MyFuture calculator. You can also speak to one of our financial planners for personalised superannuation advice. Click here for more details.


This article is provided for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. You should consider whether it is appropriate for you before acting on it and, if necessary, you should seek professional financial advice. Before making a decision to invest in the Equipsuper Superannuation Fund, you should read the appropriate Equip Product Disclosure Statement (PDS). 

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