Australians’ superannuation to hit $5 trillion. How well is it serving us?

Some numbers are so mind-bogglingly big, it’s hard to truly comprehend them.

The collective value of Australians’ superannuation nest egg is about to top $5 trillion, if it hasn’t already. (It’s hard to know exactly due to data lags and market fluctuations.)

That’s $5,000,000,000,000. Aka: a lot of zeros.

For a population of 28 million, that’s an average of $178,571 for every Australian alive (and, of course, much more — or less — for some).

The $5 trillion number is equal to 20 months of our collective annual economic output, a hefty emergency fund on any reckoning.

In the coming decades, Australia’s pool of private retirement savings is set to surpass that of both Canada and United Kingdom, to become the second-largest in the world, behind only the United States.

So, how well is Australia’s retirement system serving us? And will you, personally, have enough to retire comfortably?

The quirk in our super system

There’s a reason why “how much do I need to retire” is one of the most commonly asked and vexed questions in Australian personal finance.

Australia has what is known as a “defined contribution” system, as opposed to a “defined benefit” system. In short: you know how much you must put in each year (12 per cent) but little idea what that will pay you out in retirement.

It’s a unique quirk of our political history that it was a Labor government that decided to push the risk of securing a comfortable retirement onto private individuals via a system run entirely by non-government entities, aka super funds.

When introduced in 1992, the “Superannuation Guarantee” forever linked the comfort of your retirement to your experience in the workforce, immediately putting low-skilled workers and people taking time out of the workforce for caring responsibilities, most commonly women, on the backfoot.

Superannuation was positioned as one of “three pillars” of Australia’s retirement income system, namely the age pension, superannuation and private non-super savings.

An invisible, but structurally crucial, fourth pillar of “housing” was never explicitly recognised. But, for generations, owning your own home has been a necessary precondition to secure a comfortable retirement (the age pension being only generous enough to cover basic non-housing costs).

Albeit a Labor Party creation, the Howard government grabbed the political football of super and ran with it, cementing generous tax breaks on contributions to super accounts and abolishing all tax on super withdrawals. The 15 per cent flat rate of tax on super contributions, of course, delivers large tax savings to high income, largely white-collar workers.

Most people think super was introduced to eventually replace the age pension, essentially forcing Australians to become self-funding in retirement. But that was never truly the ambition. In fact, two-thirds of Australian retirees today continue to draw either a full or part age pension in addition to any superannuation they have.

Much, if not all, of the age pension savings so far have been offset by the large drain on government coffers from the relatively low tax applied to super versus wages.

Policing the superannuation ‘mega-fund’

Increasingly, the retirement nest eggs of Australians are being managed by a shrinking number of super funds, each overseeing hundreds of billions of dollars. Super funds are not companies listed on the share market, and therefore accountable to shareholders, but rather “trustees”, run by private boards who require constant vigilance from corporate and prudential regulators to ensure they are acting in the best interests of their confused and largely disengaged members.

Concentrated power in the hands of a few “mega-funds” is a trend expected to continue, according to a recent report by Deloitte looking ahead to 2045.

“The end result is expected to be a $12 trillion asset pool controlled primarily by 10 or so mega-funds that have a fiduciary obligation to act in their members’ best financial interests in order to help fund their retirement,” the report says.

Policing that “obligation” now poses a headache for regulators, who have uncovered significant risks to members in the system, including poor customer service and complaints handling and delays of two years in paying out insurance coverage linked to super accounts.

Proper scrutiny of fund activities, including how they spend member funds, remains paramount.

Australia’s top 10 “mega-funds” (for which data is available) spent a collective $388 million on marketing in FY25, and just $45 million on helping members with their complaints and feedback, APRA figures show.

Like many other financial firms, banks, insurers, et cetera, Australia’s top super funds are increasingly locked in a marketing arms race of mutual assured member value destruction, justified by a supposed need to “maintain market share” of customer eyeballs.

Opacity of underlying investments

Regulators are also ringing the alarm bell about the quality of information provided to super fund members about the value and nature of the underlying investments into which they are deploying members’ cash.

“We are disappointed and remain concerned about how valuation risks are assessed and addressed for unlisted investments,” the corporate regulator ASIC warned last month.

The increasing flow of member money into so-called “private credit”, where money is lent, in hopes of a return, to ventures outside the established banking system, has also worried regulators.

For super fund members, knowing how to choose their underlying investments is hard enough. Super savers are generally presented with a choice of pre-mixed options, with names like “high growth”, “growth”, “balanced” and “conservative”.

The default “balanced” option of Australia’s biggest fund, Australian Super, for example, currently allocates member money like so: Australian shares 24 per cent, international shares 30.5 per cent, private equity 5.5 per cent, property and infrastructure 18 per cent, credit 4 per cent, fixed interest 14 per cent and cash 4 per cent.

Members may have little idea this includes a Hawaiian shopping mall and luxury time share, an apartment block in central London, airports and ports around the world and a large chunk of the office space on National Circuit in the parliamentary triangle of Canberra.

A detailed spreadsheet disclosing all the individual investments in Australian Super’s balanced fund runs to more than 4,000 rows.

Quite how these investment decisions are arrived at may be a matter of some considerable mystery to most members.

Super fund trustees largely don’t make these investments themselves but rather outsource such decisions to a myriad of investment managers, all collecting fees along the way, of course.

The recent rise of ultra-low-cost, index-tracking funds with yearly management fees as low as 0.03 per cent raise significant questions of whether the financial wizardry performed by active fund managers are really worth the investment fees of closer to 0.5 to 1 per cent charged on many default investment options.

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Delivering optimal outcomes

Most Australians are left confounded about how much super they actually need and they are ripe pickings for predatory “super-switching” schemes, such as happened in the collapse of First Guardian and Shield.

For those who do retire with a decent nest egg, many are too scared to spend their money in retirement in case they run out.

Surplus super savings end up left to their kids, compounding intergenerational wealth inequalities.

During working lives, super balances are eroded by sub-optimal fund member decision making, including not choosing an appropriate level of risk for your age (the younger you are, the longer you have to ride out the volatility in higher growth assets like shares) and fear-based switching to cash-heavy or “conservative” options in times of market turmoil.

Few members who try to time the market manage to switch back to a shares-heavier option to catch the recovery, according to Xavier O’Halloran from Super Consumers Australia.

“You can mistime the market by a matter of days and be significantly worse off by chopping and changing,” O’Halloran says.

He says the best place to start to figure out your retirement sums is the government’s Moneysmart retirement income calculator.

Centrelink also has a free “Financial Information Service” to help you understand your age pension entitlements.

There remains much work to do to ensure Australia’s $5 trillion super system delivers optimal outcomes for consumers.