The SMSF Owners’ Alliance said a report by the former head of the School of Economics at UNSW, Dr Ron Bewley, indicates that unless a superannuation member contributes the maximum $25,000 contribution cap every year of their working life, they are unlikely to ever a achieve a balance of $1.6 million in super.
According to Dr Bewley, a superannuant contributing $25,000 each year over a continuous 38-year accumulation phase into a capital stable fund are likely to only end up with $1,485,956 at the end.
“How many people even with great prospects can put aside $25,000 per annum from their income when they have possibly just left home, are paying HECS off, are saving for and buying a home, having kids, etc?” he said.
Over a 20-year period, if the super member invested $25,000 each year but used their non-concessional cap of $500,000 in year one and invested into a balanced fund, they would still only have a 50 per cent change of achieving a balance above $1.6 million, he said.
"Most people will not be able save the $1.6 million cap in super, however much they earn, unless they can contribute the annual caps for around 38 years," he said.
Under the new super proposals, private sector workers whose super savings are exposed to market and longevity risk, he said, are severely disadvantaged compared to public sector employees, including politicians, on defined benefit schemes that are guaranteed by the government.
"The contribution caps are obviously far too low for most people to reach an amount needed to compete with the ‘four times Aged Pension’ or politicians’ $100,000 defined- benefits pension," said Dr Bewley.