Superannuation – Navigating the Rising Cost of Living and Inflation

Superannuation is a vital aspect of financial planning in Australia, designed to provide retirement income for individuals. However, as the cost of living rises and inflation erodes the purchasing power of savings, Australians face challenges in securing their financial future. 

         Rising Cost of Living

Over 2022-2023 financial year, many Australians have felt a pinch with an annual inflation rate of 6.0%. For retirees, this means that the purchasing power of their retirement savings diminished significantly, eroding their ability to maintain their desired lifestyle. For working aged individuals, the value of their current savings has eroded. For those retirees who own their own home, the minimum annual cost for a comfortable retirement has risen by 6.1% over the 2023 financial year. That amount is now $50,207 for singles and $70,806 for couples according to the ASFA Retirement Standard. This emphasises the need for superannuation funds to achieve good inflation-adjusted return, to offset these effects of inflation.

         Volatility of Returns

Facing a relatively difficult market environment influenced by various factors such as geopolitical tensions and economic uncertainty, on average, superannuation entities returned 8.6%  for the financial year ending June 2023. While markets have shown signs of stability in the past 6-12 months, ongoing uncertainty persists in investment markets. Sharp market downturns can reduce retirement savings significantly, making it crucial for individuals to have a well-diversified, low-cost investment option to provide strong but reliable returns.  

        What can individuals do?

         1.    Check the performance of your Super fund: 

Whether you looked at these figures years ago or never before, it’s always important to know how your super fund and your retirement savings are performing. The ATO YourSuper comparison tool is a great resource to find the net returns of the fund as well as the annual fees paid. 

         2.   Review your investment option and the fees you pay: 

Make sure your investment option reflects your long-term retirement goals and your risk appetite. Another key factor to consider are the fees being charged. Consider how these compare to other funds. Check if the level of insurance being provided is necessary, considering your age and financial responsibilities.

        What can Super funds do?

          1.    Low-cost investment options:

As the superannuation industry rationalises and the economies of scale for each fund increases, there continues to be opportunities to reduce costs for members. In tandem with strong returns, reducing the fees charged will improve the standard of living for retirees.

          2.    Develop and provide comprehensive retirement income solutions: 

APRA and ASIC have called for greater effort across the industry for funds to execute their retirement income strategy. This has been responded to by a slight increase of new retirement income products from some funds, but still at a modest level across the wider industry. 

          3. Education and literacy:

Investing in educating members about the importance of long-term planning, diversification, and the impact of inflation on retirement savings will help members to understand their financial situation and how they can achieve their retirement goals. Financially-literate members are more likely to make informed decisions.

Strong retirement savings are the backbone of a comfortable life after retirement and protecting your financial future is crucial to provide a secure retirement. By taking proactive steps, both individuals and super funds need to work together to address the evolving landscape of retirement planning in Australia.



Sankarshan Muralitharan is a senior actuarial analyst at McGing and has worked on a number of superannuation fund and life insurance projects where member equity and fairness, linked to member and policyholder best outcomes, are core.