The $4.4 trillion question: What is Australia’s super system really funding?

Australia’s compulsory superannuation system has grown into a second financial system holding about one-third of the nation’s financial assets, sending an increasing share of retirement savings overseas and attracting tax concessions almost equal to the cost of the Age Pension, according to new research examining what the $4.4 trillion pool does to the economy beyond retirement saving.

The study, the seventh report in The Balance Sheet research series, tracks the system from $148 billion when compulsory superannuation began in 1992, about one-third of GDP, to $4,437.9 billion at March this year, roughly one and a half times Australia’s annual economic output and the seventh-largest pension pool in the world despite Australia being only around the world’s fourteenth-largest economy.

Only a handful of countries operate pension systems larger than their annual economies, making Australia’s compulsory superannuation system one of the world’s largest institutional investors relative to the size of its economy.

Its most consequential finding concerns where the money now goes. International shares have become the largest single asset class, accounting for 32 per cent of fund portfolios compared with 23 per cent for Australian shares, while about half the pool is now invested offshore, up from 35 per cent a decade ago. Funds themselves expect 50 to 60 cents of every new investment dollar to be directed overseas. The report attributes the shift largely to scale. Australia’s retirement savings pool has grown larger than the domestic sharemarket can readily absorb.

“Australian retirement savings increasingly finance other countries’ capital formation,” the report says.

The research also tested one of the most common claims about compulsory superannuation: that automatic contributions continually push asset prices higher.

It found a more nuanced picture.

The system received $226.1 billion in contributions and paid out $143.5 billion in benefits in the year to March, leaving net inflows of $74.5 billion. Of that, an estimated $17 billion reaches Australian listed shares under current asset allocations, equivalent to about 1 per cent of annual sharemarket turnover, making super funds close to price-takers in day-to-day trading.

However, the system’s overall annual inflows exceed all new listed equity raised in 2025 and the value of every commercial property transaction completed in Australia.

That, the report says, gives large funds “considerable potential influence in thin primary and unlisted markets”, although the actual impact depends on how those flows are allocated.

“Super’s allocated flows are too small to drive the ASX tick by tick, and the system is too large to be absent from any auction of an airport, a port, a toll road or a privatisation,” the report says.

The ownership footprint reflects that influence.

Through direct investments and IFM Investors, the $234 billion infrastructure manager owned by fifteen industry funds, superannuation now holds substantial stakes in Sydney, Melbourne, Brisbane and Perth airports, NSW Ports, half of electricity distributor Ausgrid, about one-quarter of Endeavour Energy and the largest shareholding in toll road operator Transurban. Estimates suggest super funds own between one-fifth and more than one-third of the Australian sharemarket, depending on whether self-managed super funds are included.

What the money buys becomes the report’s central distinction.

Less than 1 per cent of super assets are invested in venture capital, the part of the market that finances new companies. Of the $99 billion invested in Australian renewable electricity generation since 2020, the country’s thirty largest super funds contributed only about $771 million directly. Instead, the report finds many of the system’s largest investments have involved privatised infrastructure and existing assets changing hands.

International shares have become the largest single asset class, accounting for 32 per cent of fund portfolios compared with 23 per cent for Australian shares, while about half the pool is now invested offshore, up from 35 per cent a decade ago

Its measured conclusion is that the marginal super dollar continues to purchase predominantly existing assets and is increasingly invested overseas.

On the budget, the report finds superannuation tax concessions will cost $60.7 billion this financial year, within $2 billion of total Age Pension spending and more than the annual cost of the National Disability Insurance Scheme.

About two-thirds of those concessions flow to the highest-income fifth of Australians and around 60 per cent accrue to men.

The Retirement Income Review found increasing the Superannuation Guarantee to 12 per cent costs more in tax concessions than it saves in pension spending until around 2055.

Yet the substitution the system was designed to support is becoming increasingly visible.

The proportion of Australians aged between 65 and 69 receiving the Age Pension has fallen from 60 per cent in 2012 to 26 per cent today, while pension spending is projected to decline from 2.3 per cent to 2.0 per cent of GDP by 2062-63 despite Australia’s ageing population. The report attributes the change to superannuation alongside changes to pension eligibility, asset-testing rules and higher workforce participation.

The median member remains well short of affluent. Median balances stand at $236,000 for men and $175,000 for women aged between 60 and 64, leaving a gender gap of 26 per cent. At the same time, an estimated $5 billion to $6 billion in compulsory employer contributions goes unpaid each year, largely affecting casual and lower-paid workers.

The report also challenges one of the most persistent concerns surrounding superannuation: that retiring Baby Boomers will eventually force funds to sell large volumes of assets.

Treasury’s own modelling suggests benefit payments will not exceed annual contributions until sometime after 2060.

Instead, the research finds retirees are generally not exhausting their balances.

Most Australians die with a substantial proportion of their super still intact, and official projections suggest annual death benefits will rise from about $17 billion today to around $130 billion by 2059. Roughly one dollar in every three leaving the system is projected to do so as an inheritance rather than retirement income.

The report describes the trend as “a retirement-income scheme evolving into a tax-advantaged intergenerational wealth-transfer vehicle”, a weakness that contributed to Australia receiving its lowest-ever ranking in this year’s Mercer Global Pension Index.

A pool of this scale inevitably attracts policy interest.

The report examines confirmed proposals, including Treasury’s plan to adjust superannuation performance benchmarks so they no longer discourage investment in housing, renewable energy and data centres; the industry’s commitment at the White House to increase investment in the United States towards US$1.44 trillion by 2035; and former prime minister Paul Keating’s proposal that super funds take on parts of Centrelink’s pension administration, a suggestion that prompted support for closer cooperation alongside warnings against any merger.

The report notes none of those proposals has yet become settled government policy.

In keeping with the Balance Sheet methodology, the paper devotes a full section to evidence challenging its own conclusions. It credits compulsory super with increasing national saving, an outcome many developed economies have struggled to achieve, while noting research suggesting much of the cost of higher compulsory contributions is ultimately borne through slower wage growth.

Each major finding is assigned a confidence rating. The drawdown and inheritance projections receive medium-low confidence, while any effect of superannuation on housing prices is rated low confidence.