Super millionaires - more fiction than fact

There are fewer than 500 people with multi-million dollar superannuation balances but they have created some negative perceptions for the superannuation industry. This is part three of a roundtable.

Mike Taylor, editor, Super Review: Well we’ve been talking a lot about you know people’s position in retirement and the manner in which people are contributing to their super, and the Assistant Treasurer Kelly O’Dwyer actually went so far as saying on the record a couple of weeks ago that the notion that superannuation is creating these millionaires is a fallacy. But I think it’s a fallacy based on recent fact, which was that under the Howard-Costello contributions regime, it was possible to contribute $1 million, if you could find it. into super.  

Russell Mason, partner, Deloitte: Just before the GFC. 

MT: Yeah just before, yeah, timing’s everything. 

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RM: So it soon became half a million. 

Jocelyn Furlan, Furlan Consulting  Yeah the timing was impeccable, wasn’t it? 

MT: But is Kelly O’Dwyer right, is it a fallacy? Or does the system still generate millionaires and we’ll start with you Ange. 

Ange Calvitto, Northern Trust: Some yes but not everybody. That’s my short answer, absolutely not. There are some. 

RM: It doesn’t, I don’t think it generates those tremendous amounts that some people think are out there, for two reasons. One is the limits on contributions, and $30,000 a year to an ultra-high net worth person is small, and I think if you looked at those people, superannuation is a tiny part of their wealth. Their wealth, how they’re going to live, is completely outside superannuation. 

The other thing is, even those that are high income earners generally don’t engage with super until they get in their 50s. So even if they have the capacity to put a lot of money into super in the younger years, with the $180,000 non-concessional limit which is attractive when you look at it - people still don’t do it, they focus in on mortgages, on other investments, on negative gearing. 

I’ve certainly seen little evidence of people who even under the current system make complete use of it throughout their working life, whether they could afford to or not, so I tend to think Kelly O’Dwyer is right. 

Andrew Boal, managing director, Willis Towers Watson: I think a Grattan report came out in the last few days, and I think there’s a number in there somewhere, I’m not sure off the top of my head what the number exactly was, but it’s around 450 people have super balances above $10 million. So it’s a small number, and the savings they have is big. It does make the whole system just seem a little - you know those numbers get thrown in the paper, it makes some people feel a bit uncomfortable. 

RM: They will be retirees largely Andrew, and people that have perhaps sold businesses or used it as a realisation of commercial value of business. So even then when you analyse those, you can whittle those numbers down to those who are really pumping in a lot of extra money. 

AB: So is it a huge problem, 450 people? No. There’s obviously another group of people, I’m not sure if ASFA did some numbers on this too, like 77... 

Glen McCrea, chief policy officer, Association of Superannuation Funds of Australia: Yeah I can’t remember, it might be 475. Anyway don’t quote me on that. So we did do those numbers and we’ve released a paper on that. 

I think now you do have greater controls in terms of the caps. But that’s also why we’re looking at lifetime caps and caps on non-concessional to stop a bit of a misperception about the system, that there’s all these high wealth people out there. But there’s enough of them to grab people’s attention, and that’s not what the system’s about. 

The system’s really about helping people trying to get to that comfortable level of retirement that is quite reasonable to expect. 

MT: Jocelyn? 

JF: Yeah I think I agree with all of that, and I think in a way it’s pre-2007, yes you could - and presumably people who had it really did use the system to the best advantage. But I think it’s interesting that we’re now saying you need to have $1 million in super to have  reasonable income stream from your superannuation in retirement. So that’s a worthy goal.  

AB: I think we’ve always got to be careful and be precise, and we talked about the $1 million. Talking to Russell’s point earlier that the $580,000 they were talking about in contributions, when you add investment earnings to that, that gets you to over $1 million. 

A couple with $1 million combined with the aged pension can draw down about $58,000 a year for 25 years, which is the ASFA comfortable level. So yes, for a couple, $1 million buys you that. Now for an individual, a single person, it’s different, home ownership’s another whole equation as well. So when we talk about comfortable and adequacy you need to be precise when you’re talking about a comfortable individual. 

Part one: Giving super a purpose

Part two: Sharper targeting of super tax concessions

Part four: Governance and choice - distractions or priorities