Unless you’ve been living under a rock, you’ll be well aware of the cost-of-living struggle most Australians are enduring. The struggle has been going on since the beginning of the pandemic in 2020. Some of us have fared better than others, with life returning to some semblance of normality. Yet for a significant number this is not the case. In fact, a new report suggests one in every five Australians is now retiring into poverty.
More disturbingly, the report, Reducing Poverty in Retirement, suggests that number is likely to rise. The report was prepared by The Australia Institute, an independent Australian policy think tank. In a statement accompanying its release on 31 October, the institute said Australians faced a “brutal double whammy”.
The double whammy is going through their entire working life unable to afford a home and then retiring into poverty. According to the report’s authors, though, the situation need not be so dire. Australian policymakers can learn from their Nordic counterparts in Norway and Sweden, they suggest.
A system that produces poverty
Aspects of Australia’s retirement system have driven the rise in the numbers of those retiring into poverty, the report claims.
“This report highlights the broken nature of Australia’s retirement system that leaves many people living in poverty,” said report co-author Greg Jericho, chief economist with The Australia Institute and an economics and politics columnist for The Guardian.
Mr Jericho believes Australia’s aversion to taxing the wealthy is at least partly to blame. “Rather than ensure people are able to retire with dignity,” he said, “Australia’s superannuation system is geared towards reducing tax for the wealthiest in society.”
Despite large numbers of retirees relying on the pension when they retire, Australia spends less than many other countries on the public pension system. OECD figures from 2019 show Australia ranks lowly in terms of public pension spending as a percentage of GDP.
In a list of 38 developed countries, Australia ranked 29th, spending 5.29 per cent of GDP on public pensions. This was below the OECD average of 7.43 per cent. What’s more, that percentage is predicted to fall. Separate research published by the Association of Superannuation Funds of Australia (ASFA) suggests that figure will drop over the next 35 years.
A better way
The Australia Institute’s report recommends looking to Nordic countries such as Norway and Sweden to halt the poverty decline. Matching the public spending percentage of those two nations would be a good starting point, the authors suggest. Norway spends 9.30 per cent of public spending on the pension, with Sweden not far behind, at 9.09 per cent.
“Sweden and Norway show that there are better ways of doing things,” said Mr Jericho.
But where would the money to fund such an increase come from? Mr Jericho leaves no doubt about his answer: “Our super system offers massive tax concessions that mostly benefit the wealthy. These concessions cost us nearly as much as spending on the Age Pension. We should be supporting retirees who are truly struggling.”
Reducing what he describes as inequitable superannuation tax breaks given to high-income earners will reduce poverty among retirees, he said. “It’s time to take action and give them the support they deserve.”
You can read The Australia Institute’s full report here.
Are you concerned about retiring into poverty? Does the government need to act on this issue? Let us know via the comments section below.
Also read: Retirement age for Aussies jumps
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