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What do people do with their super

Sometimes, when you listen to the commentariat, you get the feeling that the regulators just don’t trust us to manage our own money. In many ways, this is the very reason that super exists – so that retirement savings are locked up (or ‘preserved’ in the jargon) until the person is ready to retire.

Occasionally, there are even calls to say that people should not be able to withdraw lump sums from their super – that they should be forced to withdraw the money slowly over time.

In 2015, the Productivity Commission produced some research into how people went about withdrawing money from their super. Unsurprisingly, they found that people with more money in super withdrew lower percentages of their super as a lump sum. Using the PC’s own infographics, here is what they found:

What the tables on the right show is that only 17% of total benefits are withdrawn as lump sums – but this percentage is as large as 45% for people with balances less than $50,000. As balances rise, the percentage taken as a lump sum falls to just 4% of total balances for people with benefits over $300,000.

It is then worth looking at what those people who withdraw lump sums do with the money. Again, the PC show their findings in a neat table:

As this graph shows, 56% of the money withdrawn as a lump sum is then invested elsewhere (including the member’s home: residential property is actually Australia’s best-performed long-term asset class). Add to this the 13% that is used to pay off debt, and we see almost 70% of withdrawn benefits are used for what could only be deemed to be responsible, prudent reasons. In fact, on the list above, there would only be one use of the money which could be deemed a lifestyle decision – and paying for a nice holiday or a newer car at the end of a working life is hardly an unjustifiable extravagance.

So, if we put these two pieces of research together, we see that Australians are actually quite reluctant to withdraw too much from their super fund, especially when they have larger balances, and that the money they do withdraw is then used very intelligently.

We Aussies are smarter than we think!