A recent Vanguard research report from the US tags employees who have been automatically enrolled in retirement funds from their early years in the workforce as the ‘auto-savings generation’.
In the Australian context, perhaps the nearest group to the "auto-savings generation" would be employees who have potentially received compulsory employer super contributions throughout their working lives.
Australia’s superannuation guarantee system was introduced 23 years ago. Therefore, those who joined the paid workforce between ages 20-25 in 1992 would now be in their mid-to-late forties.
By contrast, Australia’s oldest baby boomers born about 1946 would have been middle-aged by the time our compulsory super system came into existence.
The structure of the US retirement savings system is, of course, very different to Australia’s. For starters, it doesn’t have our mandatory employer contributions.
Nevertheless, the Vanguard research report – The Auto Savings Generation: Steering Millennials to Better Retirement Outcomes – makes some key observations that are extremely relevant to Australian super fund members.
The paper was based on data from about 400 employer retirement plans that provide for regular contributions. By 2013, 40 per cent of these plans automatically enrol employees – up dramatically from just 1 per cent 10 years earlier. (The latest data covers almost one million employees.)
The "auto-savings generation" was found to have experienced the strongest gains in retirement savings rates across all generations.
The paper’s author Jean Young, a senior research analyst with the Vanguard Centre for Retirement Research, emphasises that within all generational groups, individuals "display a broad array" of retirement savings patterns or behaviours.
"All generational cohorts would potentially be better off with higher savings rates and higher adoption of professionally managed [asset] allocations," Young adds.
Although employees in Australia aged up to their mid forties have potentially received compulsory employer super contributions since joining the workforce, whether an individual’s retirement savings are adequate is, of course, an entirely different matter.
Points worth keeping in mind include:
- Australia’s superannuation guarantee contributions began at just 3 per cent of employees’ salaries or 4 per cent for employers with payrolls of $1 million-plus.
- Many employees have interrupted working lives, spending years out of the workforce for such reasons as unemployment, to raise a family or poor health. (Rice Warner Actuaries, among others, has long highlighted the retirement savings gap between men and women – in part because of women leaving employment to look after their families and because of their lower average incomes.)
- A trap for super fund members is to jump to the assumption that compulsory contributions will be adequate finance their desired standard of living in retirement.
- Compulsory super contributions do not apply to the self-employed.
A critical message for super fund members – including those in the "auto-savings generation" – is to question the adequacy of their retirement savings and to consider making extra voluntary contributions if possible.
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Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment. |
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