Total superannuation assets projected to triple in next 20 years, says Deloitte

Australia’s total superannuation assets are projected to almost triple from $3.4 trillion to over $9 trillion over the next two decades to 2041, according the tenth edition of Deloitte’s Dynamics of the Australian Superannuation System report.

All dominant sectors including industry, retail and SMSFs are set to see growth in the next 20 years, but industry super funds are expected to outperform.

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According to Deloitte consulting partner Andrew Boal, “It’s no secret that industry funds are now the largest pre-retirement sector, and this position will gradually strengthen into the future. We expect the Your Future, Your Super package will favour industry funds, as most young people joining the workforce for the first time are likely to join an employer whose default super arrangement is an industry fund.”

“Retail funds will also continue to grow, but not as strongly, reflecting the gradual remediation of issues raised by the Royal Commission, progressively winning back the trust of consumers, and addressing underperformance issues.”

The report indicates that growth to date has been largely driven by historic all time low inflation and cash rates, as well as contribution inflows exceeding outflows. Despite COVID-19 constraining economic growth and generating volatile short term conditions, the medium term has seen super funds deliver consistent returns.

Projections also reflect the changes in legislations for Super Guarantee (SG) contributions, increasing from 10 per cent in July 2021, to 12 per cent by July 2025. This comes in the wake of 3.5 million people drawing down on a total of $36.4 billion in superannuation during the COVID-19 Early Release of Super scheme.

“Each generation is building larger real superannuation balances than earlier generations, underpinned by longer periods of their working lives covered by the compulsory Superannuation Guarantee (SG) system and higher SG rates than in the past. The maturing of the superannuation system will greatly increase the importance of the retirement segment of the market,” the authors say.

Voluntary contributions are also expected to continue into the future as year on year contributions remain strong.

With Baby Boomers moving into retirement, post-retirement assets are set to increase. However the report predicts that instead of superannuation balances providing a steady income in retirement, there will be a considerable drawdown as lump sums and ad-hoc withdrawals.

“The needs and behaviour of members in retirement varies considerably between different cohorts of members. Superannuation funds in Australia will have to develop a retirement income strategy suitable for differing groups of retirees at different life stages,” the report states.

“This provides real opportunities as well as challenges for the industry to innovate and develop retirement products to enable retirees to manage the dual risks of longevity and investments, while still being simple and easy to understand.”