Retirees set to own 55 percent of superannuation assets by 2032 — what does that mean?

Key points:

• Superannuation fund members aged 65 or over owned 40 percent of Australia’s $3.3 trillion dollars in super assets, as of 2022 — many of which were retirees

• Two-thirds of self-managed super fund assets were owned by retirees

• Retirees currently own an estimated 26 percent of the money held with the Australian Prudential Regulation Authority [APRA]-regulated funds — namely, not-for-profit and retail funds

Rainmaker Information found the share of superannuation assets owned by retirees could increase to 55 percent by 2022 and could reach a share of 70 percent by 2042, with ongoing market consolidation.

The Institutional Shareholder Services [ISS]-owned market intelligence publisher reported that ongoing market consolidation will push future-retirees to consider the risks associated with the ratio of retiree-owned assets in their fund.

Why you should care about the ratio of retiree-owned superannuation assets

The purpose of a superannuation fund is for capital to appreciate, which means ‘grow in value,’ over time or be managed and invested in a way that yields the best possible return for investors. However, for people who have completely retired or are accessing their superannuation funds on a regular basis to withdraw money to support their day-to-day needs, the nature of capital management will be adjusted accordingly.

If factors such as liquidity — meaning the total pool of available funds which can be withdrawn — are constantly affected by withdrawals or expected withdrawals, new methods for investment will be adopted. Typically, investment will be managed on the basis of a risk profile, meaning those with a lower risk tolerance — such as retirees, will require low-risk and low-yield investments to avoid market volatility impacting their savings. Similarly, retirees will want their savings to last for as long as possible, so the appetite to invest and potentially make more money for future generations of super contributors may be stifled by the needs of other fund members.

The 10 largest superannuation funds in Australia control half of all retirement assets in APRA-regulated funds, as market consolidation continues. [Source: APRA, analysis and projections by Rainmaker Information]

Retirees currently own approximately $625 billion in assets within APRA-regulated funds, while their ownership across all super funds amounts to a staggering $1.3 trillion, according to the report.

If superannuation savings nearly double to seven trillion dollars over the next decade, based on the analysis APRA-regulated funds could hold $1.8 trillion in retiree assets alone, which is triple the current amount. The total superannuation assets owned by retirees across all funds could reach $4 trillion.

Rainmaker Information is a leading force in market intelligence, research, and consulting services in the wealth management industry. [Source: NewsHub/MediaNet]

Alex Dunnin, executive director of research and compliance at Rainmaker Information, said these estimates have far-reaching implications for the superannuation landscape and investment strategies.

“Understanding the shifting dynamics and increased ownership by retirees is crucial for devising effective investment strategies and ensuring the long-term sustainability of the superannuation system,” Mr Dunnin said.

“Some funds already have half of their assets owned by retirees. Furthermore, the retiree funds under management [FUM] ratio for APRA-regulated funds has increased by over one-third since 2015.”

“Not-for-profit super funds, which have been increasingly dominant, are expected to extend their influence into retirement superannuation as well,” Mr Dunnin said.

He concluded that the shifting nature of the industry could have drastic consequences for the future of the retail super fund market and the way future retirees seek to manage their superannuation contributions.