“Start with the facts.” That was the motto of the government’s recently released review of the Australian retirement system. Don’t come up with policy recommendations; just give us the fact base to think about. A lot of the news media coverage of the review has been about policy implications. For instance, will the government back off on the promise to raise superannuation guarantee contributions from 9.5% to 12% of salary? But, I reckon it’s the treasure trove of information that might be most interesting to you. At 650 pages, the Retirement Income Review is a hefty report. We’ve waded through it for you to highlight some key learnings about how Australians retire.
One of the key topics is Adequacy – do people have enough in retirement? The review looks at that a number of ways.
First, good news:
- Australian retirees (65+) generally have higher levels of “financial satisfaction” than younger Australians (45-65).
- Retirees are less likely to be in financial stress than working-age households. About 11 per cent of retirees are in financial stress, compared with 16 per cent of working-age households.
- The Age Pension is a critical pillar of the Australian Retirement Income System and makes a big contribution to the welfare of Australian retirees.
- About 60% of single households (and 50% of couples) are on the Age Pension at eligibility age (currently 66) but that rises rapidly as people age. For 85 year-olds, about 85% of single people and 70% of couples receive some Age Pension. Overall,for those over 65, 71% are on some pension payment
- For many retirees, the Age Pension provides a higher level of income than they receive during working life after adjusting for tax. For example, the maximum-rate Age Pension is higher than wages for 21 percent of people, and 15 percent of households, aged 25-64.”
- The Age Pension has increased faster than average wages since 2009.
- While there’s a lot of worry-talk in the media about the Age Pension being unaffordable for the government, due to the ageing of the population, the Review paints a different picture. The cost of the Age Pension is currently about 2.5% of GDP and it’s expected to stay very close to that level through 2060. That looks sustainable.
- Australians’ high home ownership levels support financial adequacy in old age. The costs of home ownership is generally significantly lower as a percentage of the household budget than housing costs for renters.
- Government and other concessions to retirees also help out by reducing out-of-pocket expenses. The value of Health, Aged Care and other support services are often underestimated but they are substantial. For example,the Pensioners Concession Card and Commonwealth Seniors Health Card give card holders access to subsidised pharmaceuticals and bulk-billed medical appointments. And tax paid by retirees is low on average due to a number of favourable concessions for retirees, including account based pensions, the benefits of franking credits, and various tax offsets, like the Seniors and Pensioners Tax Offset.
- Superannuation is increasingly supplementing the Age Pension, as the compulsory savings system matures since its birth in the early 1990s.
This chart shows overall happiness among retirees in a 2015 survey, which suggests retirees are a pretty happy bunch:
And this chart from a 2018 survey shows recent retirees nearly 80% content from a financial perspective.
Now, for some not so good news:
- Not everyone in the retirement system does well. “In particular,” the Review says, “the retirement income system does not appear to be delivering an appropriate minimum standard of living for renters and many who retire early.” Significant portions of these groups (25% or higher, compared to 11% overall for retirees) register financial stress.
- People who rent are not sufficiently compensated by Commonwealth Rent Assistance or the differential in the Age Pension for renters vs homeowners.
- Many people end up retiring early, and often not by choice but due to changing work circumstances or health issues. These people are also more likely to feel financial stress.
- There clearly remain many retirees with low incomes. The retirement system does not make the poor rich nor remove all the inequity in financial wherewithal. However, the means testing of the Age Pension does make a big difference in reducing overall inequality among retirees.
What do you think?
The question of whether we have enough is very subjective. “More is generally better” but “as long as we have enough, that’s fine” is a strongly-held Australian attitude. At least I think so.
One way to make sure you have enough is to stay on top of your Age Pension entitlements. As the Age Pension is so central to our Retirement Income System, it’s best to know how it all works and keep your eye on your entitlements. You can do that here.
How would you compare your overall wellbeing and happiness in retirement to when you were working? Are you much happier, or perhaps you think you are worse off. Let us know what you think by commenting below.