Drawdown behaviours are universally similar among retirees regardless of the size of their accounts, with almost half of all retirees only drawing down the regulated minimum, according to the most comprehensive study of Australian superannuation accounts ever undertaken.
“Contrary to some views that retirees quickly run down their super balances and then rely wholly on the Age Pension, the reality is that at least half of the pensioners take a very financially conservative approach in retirement,” said Anthony Asher, convenor of the Actuaries Institute Retirement Income Working Group.
The view is based on two studies: one from actuaries, Plan for Life, and one from the CSIRO. The first was sponsored by the Actuaries Institute, and compiled from data supplied by 15 large funds, accounting for more than $12 billion of assets in the drawdown phase in each year, of the study. The second is based on ATO data provided to the CSIRO.
However, the reports also predict there will be an increasing number of retirees in the future who will run down their superannuation accounts completely, by drawing down more than 10% of their balances (the minimum is 6% for those under 80 and 7% for those over), putting further pressure on the Federal Budget and the Age Pension.
“The data confirms research from other sources that a significant minority of retirees have, in recent years, run out of retirement savings before death. The next step is to understand why? It could be intentional and a natural step as their income needs decline, such that the Age Pension is sufficient at older ages. On the other hand, they may have lost money due to dementia, financial abuse of some kind, or poor decision making,” said Dr Asher.
He said more work needed to be done on understanding why this happened. The reports’ main findings include:
. While average account sizes were significantly lower for industry funds when compared with retail, corporate and self-managed funds, their pension and partial drawdown patterns were remarkably similar suggesting shared behaviours between pensioners in all groups.
. Close to 50% of pensioners seem very cautious and draw the regulated minimum from their accounts, underlining the importance of default mechanisms in superannuation. This is true for all types of funds.
. Some retirees will exhaust their superannuation balances entirely and while the proportion overall is small (about 5% of SMSF balances), the numbers will grow in future years as the population ages. This is because, between the ages of 75 and 85, about a fifth of balances are being drawn down at more than 10% of their balances, which is not sustainable for those who live longer than average.
. The data also revealed that approximately 400,000 accounts, totalling $22 billion, were withdrawn in full from non-SMSF accounts, reflecting a large number of small accounts. Interestingly, average full withdrawal amounts for industry funds were found to be two to three times larger than for retail and corporate funds;
. The average balance on death for retail and corporate funds was $50,000. However, the superannuation system is not yet fully mature and these balances do not reflect participation in the superannuation system throughout a working life.
