THE lift in Australia's compulsory superannuation has come too late for many baby boomers nearing retirement, experts have warned, prompting calls for super funds to improve how they manage investments for those nearing the end of their working lives.
The super industry yesterday welcomed passage of legislation lifting compulsory super contributions from 9 to 12 per cent by 2020, saying it would produce significant benefits for the economy, the federal budget, and the retirement of millions of Australians.
But funds have been told to do more to help baby boomers approaching retirement, who would not receive substantial benefits from the measure.
The increase in the superannuation guarantee, part of the mining tax package passed on Monday night, will produce a 0.33 per cent increase in real GDP a year by 2025, according to a report by Allen Consulting for the Association of Superannuation Funds of Australia, and reduce the retirement savings gap by $184 billion, according to the Financial Services Council.
Legislation was also passed introducing a low-income super contribution for lower earners that will effectively make their super contributions tax-free. Association of Super Funds of Australia chief executive Pauline Vamos said this would benefit 3.5 million Australians, many of whom are women or part-time workers.
But Australian Institute of Superannuation Trustees chief executive Fiona Reynolds said while the lift to 12 per cent would boost retirement incomes for millions of younger workers, it had come too late for many people nearing retirement.
Speaking at the Conference of Major Superannuation Funds in Brisbane, she said the average super balance for men aged 65 was still about $198,000 and for women $112,000 but these numbers were distorted by a small proportion of people with more super and most retirees had only $70,000 to $80,000.
Ms Reynolds said the most important super benefit for many older people was the co-contribution where the government matches some personal super contributions and many were shocked and disappointed to learn the government was winding it back.
She said the industry needed to campaign more strongly to have the full benefit reinstated as the federal budget improved. She said this was much more important to the majority of older members than the planned caps on concessional contributions.
Griffith Business School professor of finance Mike Drew said a 25 per cent investment loss in the last five years of someone's working life could destroy up to 1.5 times their lifetime super contributions. But many funds managed the savings of older workers in the same way as they did younger people.
Towers Watson head of post retirement solutions Nick Callil said baby boomers had about $800,000 in super funds, and while there was no magic bullet for a fail-proof retirement product, there were features that could be incorporated to insulate older people against risks such as a market fall near retirement, living longer than expected and inflation.
"Sixty per cent of all [an individual's] investment earnings are earned in the 10 years on either side of retirement," he said.
It came as ratings agencies Super Ratings and Chant West reported funds had produced their second month of positive returns. The average balanced fund was up by 1.8 per cent in February, according to Super Ratings, and on track for a 4.5 per cent return for the March quarter. However, Chant West said conservative funds still had produced better returns over the past five, seven and 10 years.