Australia’s retirees are drawing down superannuation at a record pace, creating a large but easily missed source of spending power as younger households struggle with mortgages, rents and living costs.
Payments from large super funds reached $143.5 billion in the year to March, according to the Australian Prudential Regulation Authority. That was 12.3 per cent higher than a year earlier and included $79.7 billion in lump sums, up 14 per cent, and $63.8 billion in pension payments, up 11 per cent.
The numbers give economists another explanation for a puzzle running through the Australian economy. Household spending continues to grow despite years of pressure from interest rates and prices.
Spending rose 1.1 per cent in July and was 7 per cent higher than a year earlier in current-price terms, the Australian Bureau of Statistics reported last week. Discretionary spending grew 7.8 per cent over the year, with increased expenditure on recreation, cultural services and eating out.
Spending rose 1.1 per cent in July and was 7 per cent higher than a year earlier in current-price terms, the Australian Bureau of Statistics reported last week
IFM Investors chief economist Alex Joiner has drawn attention to the role super withdrawals may be playing. His seasonally adjusted analysis of APRA data puts annualised super payments at the equivalent of about 15.5 per cent of household spending.
“One aspect of the strength in household spending growth is the increased rate of superannuation drawdowns that have increased dramatically in the post-pandemic period arguably to cope with cost of living increases,” Joiner said.
Some of the money may also be travelling down the family tree.
“Could also be a bit of ‘bank of Mum & Dad’ at work as well,” he said.
The observation does not mean retirees are directly funding 15.5 per cent of consumption. Super payments may be saved, reinvested, used to repay debt or transferred to children. Some reported lump sums can also reflect financial decisions that do not immediately lead to purchases.
But the scale of the withdrawals matters, particularly because much of the money is almost invisible in the conventional story told by the economic accounts.
Regular super pension payments are included in household income measures. Lump sums generally are not. They are treated as financial transactions in which households exchange part of an asset, their super balance, for cash.
That means a retiree can withdraw $100,000, spend some of it and appear to be consuming beyond their measured income. The spending is recorded, but the lump sum supporting it is not recorded in the same way as wages or a regular pension.
Economist Stephen Koukoulas said the figures added to evidence that wealthier older Australians were helping sustain demand.
“There’s a huge proportion of boomers swimming in money from house prices; superannuation; higher interest rates,” Koukoulas said. “As I noted recently, they are a key factor in the ongoing high inflation / demand growth.”
That description does not fit every retiree. Many older Australians depend heavily on the Age Pension, have modest super balances and face the same increases in food, insurance, energy and medical costs as other households. Renters are particularly exposed.
Nor do the figures show how much of the increase is voluntary spending rather than retirees withdrawing more simply to meet higher prices.
The emerging divide is nevertheless important. A mortgage-free household with super, property and term deposits can benefit from higher interest income while having little direct exposure to rising mortgage repayments. A younger family with a large loan experiences the same interest-rate setting very differently.
The result is an economy in which restraint and abundance can exist at the same time. One household cuts restaurant meals to meet its mortgage. Another draws a lump sum, replaces a car or helps a child with a deposit.
Research published in July by The Balance Sheet puts the withdrawals within a $4.4 trillion super system that is still accumulating far more than it pays out. Contributions reached $226.1 billion in the year to March, leaving net contribution flows of $74.5 billion after benefit payments and transfers.
The fund pool is therefore not being drained by retiring baby boomers. Treasury modelling examined in the report puts the point at which drawdowns exceed contributions after 2060, although projections that far ahead depend heavily on returns, wages and policy.
The figures also complicate the Reserve Bank’s task. Higher rates are intended to slow demand, particularly through indebted households. They can simultaneously increase interest income for people with deposits and no debt, while asset-rich retirees have another source of cash available through super
The more surprising problem may be that many retirees have historically spent too little of their super. The federal Retirement Income Review found that retirees frequently draw at or near the compulsory minimum and often leave much of their balance untouched. It projected annual death benefits could rise from $17 billion in 2019 to about $130 billion by 2059.
That creates an apparent contradiction. Withdrawals are rising sharply enough to support household cash flow, but the system as a whole may still be shifting towards inheritance as well as retirement income.
Both things can be true. Australia has a growing number of retirees, larger balances and higher living costs. Even cautious withdrawal behaviour can produce an enormous stream of money when applied to a pool worth more than $4 trillion.
The figures also complicate the Reserve Bank’s task. Higher rates are intended to slow demand, particularly through indebted households. They can simultaneously increase interest income for people with deposits and no debt, while asset-rich retirees have another source of cash available through super.
Super drawdowns are unlikely to explain Australia’s spending resilience by themselves. Population growth, wages, tax changes, government payments and accumulated savings also matter. The APRA data do, however, expose a flow of money that is too large to dismiss and poorly captured by the usual focus on wages and disposable income.
Australia’s spending strength may not be coming solely from households earning more. Part of it may be coming from older households slowly cashing in wealth accumulated over decades, with some of that money arriving at the tills and some finding its way to the next generation.
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