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Super to hit $7.6 trillion in 20 years

In a report released today, Deloitte has estimated that Australia’s total superannuation assets will hit $7.6 trillion in 20 years.

Since the global financial crisis in 2008, Australia’s super pool has risen from $1.1 trillion to $1.6 trillion at 30 June 2013, and is the fourth-largest in the world. But the system designed to provide Australians with adequate income during retirement has yet to meet its goal. An estimated 81% of Australians are forced to rely, at least partially, on the government aged pension to supplement their income.

The large percentage is partly driven by the fact the superannuation system is still fairly young, so many people have had few years to contribute to their retirement savings.

But forces are at work that could still see $7.6 trillion in assets not being able to deliver the income required by retirees. The number of Australians over the age of 65 will increase by a whopping 75% over the next twenty years, with proportionally less Australians able to fund those in retirement. We are also living longer, and therefore need a large amount to provide for our retirement.

That leaves the government with some prickly decisions. Increasing contributions and forcing people to retire at a later age are two suggestions, and the government has already acted on both by raising the pension age to 67, and increasing the superannuation guarantee from 9% to 12%.

But will that be enough?

Deloitte suggests not. An average 30-year old with a salary of $60,000 is projected to have $1.1 million on reaching age 65 in 2048. To afford a comfortable retirement for the remainder of their life expectancy would require $1.58 million for a male and a whopping $1.76 million for a female, who is expected to live an extra three years. That would require an additional contribution of between 5.4% and 7.5% – on top of the increase in the superannuation guarantee.

The likely winners of the increase in super assets will be the banks such as Westpac Banking Corporation (ASX: WBC), Commonwealth Bank (ASX: CBA) and National Australia Bank (ASX: NAB) along with insurers such as AMP Limited (ASX: AMP), who have plenty of experience in fighting for individual customers, and dominate the retail sector of the superannuation system through their wealth management arms.

Foolish takeaway

Of course the institutional funds have yet to figure out how to compete with the attraction of self-managed super funds. That could see a massive upheaval of our super system over the next 20 years, as the retail and industry funds attempt to attract more customers.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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