Underpinning superannuation growth
- On 22/09/2016
- superannuation
Rising employer contributions, which currently make up almost 80% of total annual contributions, will continue to underpin the strong long-term growth of superannuation assets.
APRA statistics for the past 10 years show the steady growth of employer contributions and the widening of the considerable gap between employer and personal contributions.
By contrast, non-concessional contributions have remained relatively stable over the past decade, tending to fluctuate following periods of poor investment performance.
Future growth: Concessional contributions
Rice Warner projects that the ratio of superannuation pre-retirement and retirement assets to real gross domestic product will rise from a little over 120% today to almost 180% within 30 years.
This growth is projected despite movement of millions of baby boomers from the accumulation phase to the retirement phase and drawing upon their benefits.
Concessional contributions comprising Superannuation Guarantee (SG), defined- benefit and salary-sacrificed contributions will keep rising because:
- SG contributions are legislated to progressively increase from 9.5% in 2016-17 to 12% from 2025.
- The tax-effectiveness of superannuation in the accumulation and pension phases, together with a history of solid investment performance, will continue to attract a strong flow of salary-sacrificed contributions.
- Fund members will increasingly remain in the workforce past what have been traditional retirement ages and continue to receive SG and salary-sacrificed contributions.
Despite some commentary to the contrary, the federal Government’s superannuation proposals, which include lowering the concessional contributions cap to $25,000 from July 2017, are unlikely to have much of a long-term impact on the total amount of employer contributions. The reality is that only a very small proportion of members currently contribute up to the current higher cap.
Non-concessional contributions
The willingness or ability for members to make non-concessional contributions is influenced by such factors as past investment performance, real wages growth, other financial obligations, proximity to retirement and, with a small proportion of members, the contribution caps.
The fact that non-concessional contributions are non-mandatory and discretionary means that amounts being contributed are sensitive to such factors as the prevailing sentiment of members.
As with concessional contributions, the Government’s superannuation proposals in their original and revised form will have an impact on only a small fraction of fund members and their ability to contribute. (See Winding back a decade of generosity, Rice Warner INSIGHTS September 16.)
However, the recent Budget amendments are likely to lead to a reduction in future non-concessional contributions.
Interpreting APRA statistics
A recent decrease in non-concessional contributions, down by 11.9% in 2015-16 to $21.81 billion, cannot be interpreted as an indication that the growth of the superannuation industry is slowing. Further, the lower contribution level in a financial year does not suggest that fund members are becoming less willing to contribute over the long term, as some commentators suggest.
Interestingly, the largest fall in non-concessional contributions during the last financial year was in the December quarter, before the Government announced its since-revised superannuation proposals.
Total contributions to superannuation in 2015-16 decreased by only 0.28% to $103.8 billion, with concessional contributions rising whilst non-concessional contributions fell (see Graph 2). This puts the short-term splutter with non-concessional contributions into perspective.
Graph 1: Non-concessional contributions: 2007 – 2016
Graph 2: Member voluntary contributions (2014-15 vs 2015-16 Quarters)
Graph 3: 30 year projected superannuation assets as a percentage of GDP (2015 dollars)*
*Projected GDP has been estimated using smoothed growth rates from Treasury’s 2010 Intergenerational Report and applying these to GDP as at 30 June 2015 as published by the ABS.
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