Tuesday, September 6, 2016
Is $0.5m in super really a “small amount”?
When providing advice to a Centrelink age pensioner, a recent article in the mainstream press (7/9/16) suggested “for a relatively small amount, such as $500,000”.
Of course “relative” can mean a number of things and is dependent upon - relative to what. So let’s look at that relativity.
First we look at what $500k in super means to a single age pensioner – as was the case for the press article. Let’s assume that this was the total amount of assets held by the age pensioner.
The age pension would be reduced from $870 to approx. $440pf for that “relatively” small amount. In 2017 that age pension is expected to be reduced by a further $7,700 pa. A weekly loss to the age pensioners 'budget' of nearly $150 per week from the current 2016 pension.
Back to judging whether that $500k is a relatively small amount.
In December 2015 the Association of Superannuation Funds of Australia Ltd(ASFA) published the report “Superannuation Account Balances by Age and Gender”
So we will pick out a stat to assist with judging that relativity. The data relates to “average superannuation balances at the time of retirement (assumed to be between 60 to 64 years of age) in 2013/2014”.
So the medians – where 50% of the population has a lesser amount – the super balances are:
$100,000 for men
$28,000 for women
That is, for men, 50% of the retiring population has a superannuation balance of less than $100,000. For those applying for the age pension it is presumably far lower.
Therefore, the above mentioned relatively small $500,000 is at least 5 times that of the median for all retiring males and nearly 20 times that for women!
Update 8/8/16 – since we published this article we have received a number of comments regarding the above statistics. So we should expand in an attempt to explain.
The above median super balance of $100,000 for men, and $28,000 for women, is the median balance. That is, 50% of people have amounts less than that and 50% have amounts greater than that. Now it is the average super balance that is often reported. From the same ASFA report the “average superannuation balances at the time of retirement (assumed to be between 60 to 64 years of age) in 2013/2014 of $292,500 for men and $138,150 for women, many recent retirees will need to substantially rely on the Age Pension in their retirement.”
Much of the difference between median and average is attributed to the number of people with large super balances and those without any super.
To look at the average balance situation for a ‘household’ the ASFA report states that the “The average total superannuation balance in 2013/2014 for a household headed by a person 60 to 64 years of age was around $355,000 with a median value of $110,000.”