Despite Australians having heard for years how they don’t have enough saved for retirement, think-tank The Grattan Institute has come out swinging, insisting nest eggs around the country are more than sufficient.
In its report released today, the institute said the financial services industry “fear factory” was peddling falsehood and the reality is Australians are actually very well-prepared to enjoy their retirement.
“Across the income distribution, people typically have enough money to sustain the same, or a higher, living standard in retirement as when working. Most own their own homes. And most retirees are more likely to be able to afford optional extras such as annual holidays,” the report concluded.
While current retirees have it good, it looks like it’s going to get even better for the next generation of retirees.
“Even after allowing for inflation, the average worker today can expect a retirement income of at least 91 per cent of their pre-retirement income,” the institute said.
“Many low-income Australians will get a rise in pay when they retire, because the age pension and the income they get from compulsory retirement savings will be higher than what they earnt before retirement.”
Stormy seas ahead
Despite this bounty of good news, the Grattan Institute believes it’s not all clear sailing for Australian retirees as home ownership rates dwindle.
“Senior Australians who rent in the private market are more likely to suffer financial stress than homeowners, or renters in public housing. And this problem will get worse: on current trends home ownership for over-65s will decline from 76 per today to 57 per cent by 2056,” the report said.
Renters will thus require a larger nest egg, with the responsibility falling to the federal government to ensure adequate superannuation settings.
Currently employers are obliged to contribute 9.5 per cent to their employees’ super, increasing to 12 per cent by 2025.
This, the institute says, is “the worst way” to increase retirement incomes.
“It will cost workers and governments more today, reduce the pensions of current retirees, and do less for future retirement incomes, than the alternatives.”
Instead it recommended the government reduces superannuation fees as well as increase Commonwealth Rent Assistance by 40 per cent to deal with increasing rental pressure.
The institute also encouraged the government to relax the age pensions assets test.
“Loosening the age pension assets test could boost retirement incomes for around 20 per cent of retirees today, rising to more than 70 percent of retirees in future,” it said.
While the current federal government backed down on raising the retirement age to 70 earlier this year, the institute said this should be reconsidered by the Productivity Commission.
However, due to “broadly adequate” retirement incomes, it also recommended reducing tax breaks to ensure future sustainability.
“Reducing super tax breaks could save the budget more than $4 billion a year. Reducing
age-based tax breaks could save another $1 billion a year,” the report suggested.
Clearly despite all its current success, the future health of Australia’s retirement system is anything but guaranteed, the reported concluded.
“Australia’s population is ageing. Unless governments have the courage to make these reforms, future budgets will not be able to fund aged care and health at the same level as today, which is the real threat to adequate retirement incomes in future.”
Trading Day host Adam Creighton spoke to Industry Super Australia deputy CEO Matt Linden to get his response to the report. Watch the full interview: