Australia’s superannuation system has amassed a staggering $4.2 trillion (NZ$4.6 trillion) in funds, making the country one of the largest global investors.
According to Mary Delahunty, CEO of the Association of Superannuation Funds of Australia (ASFA), this figure highlights Australia’s prominent role in global financial markets.
Impact on Household Savings and Government Support
ASFA’s research shows that compulsory superannuation has significantly increased household savings, adding more than $500 billion (NZ$550 billion) to Australians’ wealth.
This system has also eased the financial strain on the government by reducing the need for age pension payouts, the primary form of income support for senior citizens.
As a result, Australia is spending far less compared to other nations to secure a comfortable retirement for its citizens. Currently, Australia allocates 2.3% of its GDP to the age pension, a figure expected to decrease to 2% by 2060.
In contrast, most OECD countries are projected to spend more than 10% of their GDP on pensions by 2060, with South Korea being the only country with lower spending at 1.3%.
The Rise of Australia’s Superannuation Pool
Massive Growth in Superannuation Funds
Superannuation assets have grown to over $4.1 trillion (NZ$4.5 trillion) by the end of the September 2024 quarter, according to ASFA.
These funds are actively managed by various institutions, such as IFM Investors, which oversees $230 billion (NZ$250 billion) in assets. Their investments range globally from toll roads in the US to ports in Vancouver, Canada.
Global Expansion of Super Funds
Australia’s largest superannuation fund, AustralianSuper, has expanded its reach globally, with offices in New York and a presence in London.
The superannuation system’s size is set to grow even further, with projections indicating it will become twice the size of Australia’s economy in the near future.
Australia’s Superannuation: A Global Investment Powerhouse
A Major Player in Global Investment Markets
Australia’s super system is already the fourth-largest in the world, with only the United States, United Kingdom, and Canada surpassing it.
The mandatory nature of the system means that Australia’s superannuation funds will soon surpass the UK and Canada within the next five to seven years, potentially making Australia the second-largest pension pool globally.
Australian Super Funds’ Investment Strategies
Superannuation funds control about 21% of the shares traded on the Australian stock exchange. These funds manage significant assets in various sectors, including land, office towers, and toll roads.
By diversifying investments, superannuation funds manage risks and support long-term financial stability.
| Superannuation Assets (as of September 2024) | Value (NZD) | Global Rank |
|---|---|---|
| Total Superannuation Assets | $4.1 trillion | 4th |
| AustralianSuper’s Assets | $230 billion |
The Financial Stability of Superannuation
Superannuation’s Role in Financial Stability
Australia’s Reserve Bank has acknowledged the growing interconnectedness of superannuation funds with the banking system.
While this scale could amplify financial shocks, the “preservation” aspect of superannuation—where funds cannot be accessed until retirement—helps maintain market stability during economic downturns.
Super funds, as long-term investors, can take advantage of market volatility by buying undervalued assets during a downturn, thus supporting financial stability.
Superannuation’s Global Reach and Risks
Super Funds’ Liquidity Needs and Global Investment
As superannuation funds continue to grow, their need for liquidity becomes more pronounced.
Deutsche Bank’s macro strategist, Lachlan Dynan, pointed out that the scale of Australia’s super funds means they may need to access greater liquidity overseas, particularly during global financial shocks.
While this could exacerbate market conditions, the funds’ ability to diversify their investments globally mitigates some of these risks.
Superannuation and Housing: A Proposed Change
Using Super for Home Purchases: A Coalition Proposal
In a bid to make homeownership more accessible, the Coalition government has proposed allowing first-time homebuyers to access up to 40% of their superannuation balance, with a maximum of $50,000 (NZ$55,000).
This proposal is aimed at helping Australians enter the housing market more quickly, reducing the time required to save for a deposit.
However, this idea has sparked debate about its potential to increase housing demand and drive up prices, with concerns about how it would affect the long-term financial security of retirees.
Australia’s superannuation system is not just a retirement savings mechanism; it has become a global investment force, contributing to the nation’s financial stability. With billions in assets and increasing global influence, the system continues to evolve.
Whether through providing financial security for retirees or offering capital during crises, the superannuation funds play a crucial role in shaping Australia’s economic future.
FAQs
How much money is managed in Australia’s superannuation system?
As of the September 2024 quarter, Australia’s superannuation system manages $4.1 trillion (NZ$4.5 trillion) in assets, making it one of the largest in the world.
What percentage of Australia’s GDP is spent on age pensions?
Currently, 2.3% of Australia’s GDP is allocated to the age pension, a figure expected to fall to 2% by 2060.
What is the proposed use of superannuation for first homebuyers?
The Coalition proposes that first-time homebuyers be allowed to use up to 40% of their superannuation balance, up to $50,000, to help with home deposits.
How does Australia’s superannuation compare to other countries?
Australia’s superannuation system is the fourth-largest in the world, with only the US, UK, and Canada holding larger pools of retirement funds.