A new Grattan Institute report, ‘Money in retirement: more than enough’, assesses that the vast majority of retirees today and in future are likely to be financially comfortable.

The report finds that retirees are less likely than working-age Australians to suffer financial stress such as not being able to pay a bill on time, and more likely to be able to afford optional extras such as annual holidays.

Retirement income above OECD benchmark

The Grattan Institute modelling shows that:

  • Even after allowing for inflation, most workers today can expect a retirement income of at least 91 per cent of their pre-retirement income – well above the 70 per cent benchmark endorsed by the OECD, and more than enough to maintain pre-retirement living standards.
  • Many low-income Australians will get a pay rise when they retire, through a combination of the Age Pension and their compulsory superannuation savings.
  • Australians tend to spend less after they retire, and even less into old age. Their medical costs increase, but are largely covered by the taxpayer. Many retirees are net savers, and current retirees often leave a legacy almost as large as their nest egg on the day they retired.

“The financial services industry ‘fear factory’ encourages Australians to worry unnecessarily about whether they’ll have enough money in retirement,” Grattan Institute CEO John Daley said.

However, issues with the current system will worsen for some Australians

But the retirement incomes system is not working for some low-income Australians who rent, particularly in Sydney and Melbourne. And this problem will get worse because on current trends home ownership for over-65s will decline from 76 per today to 57 per cent by 2056.

To boost retirement incomes for the poorest Australians, the report makes eight recommendations

  • Commonwealth Rent Assistance should be increased by 40 per cent. This is worth more than $1,400 a year for a single retiree.
  • The Age Pension assets test taper rate should be reduced to $2.25 each fortnight for every $1,000 in assets. Loosening the Age Pension assets test, which could boost retirement incomes for around 20 per cent of retirees today, rising to more than 70 per cent of retirees in future. It would also deal with anomalies in the system: some people who save $100 while working increase their total retirement income by less than $100 in real terms.
  • The Superannuation Guarantee should remain at 9.5 per cent. Because most Australians will be comfortable in retirement, the report assesses there is no need to boost retirement incomes across the board. The legislated plan to increase compulsory superannuation contributions from 9.5 per cent to 12 per cent should be scrapped, saving the Budget about $2 billion a year.
  • Superannuation tax breaks and age-based tax breaks should be reduced. To ensure the retirement incomes system does not become an excessive burden on future budgets, and endanger funding for aged care and health, the report recommends reform of both tax breaks.
  • The value of the home should be included in means tests for the Age Pension and aged care.
  • The Productivity Commission should investigate raising the age of access to the Age Pension and superannuation to 70 years.
  • The Commonwealth Government should ask the Productivity Commission to review the adequacy of Australians’ retirement incomes.

(Source: Media release | Read the report)

Comments are closed.