Two new reports reveal a worrying trend for Australia’s retirement income gap. Pension changes and retirement affordability mean longer living Australians are even more at risk.
Although the two reports measure different aspects of retirement income, both are equally negative when it comes to long-term retirement affordability.
First up the quarterly Association of Super Funds Australia (ASFA) Retirement Index has shown an alarming increase in savings required to fund a ‘comfortable’ retirement. According to ASFA, couples will now need $640,000 up from $510,000 at retirement – a massive 25 per cent increase. Singles now need a 27 per cent increase in savings, up from $430,000 to $545,000.
The second report, the Australian Retirement Vision Survey, released by actuaries Rice Warner, analysed responses from 1200 super fund members. It revealed the very unrealistic expectations Australians hold for their retirement income, with 60 per cent of those surveyed expecting to live on the same income after retirement. Another interesting finding was that 40 per cent of respondents saw possible changes to superannuation as the greatest concern regarding retirement savings. The two major political parties remain diametrically opposed on changes to super. The Prime Minister has declared there will be no changes to super legislation in this, his first term, and most likely none if he is re-elected. By contrast the Labor Party has put forward a policy that would reduce the generous tax concessions on superannuation currently enjoyed by high-income earners.
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Opinion: Retirement income hopes dive
There is very little good news when it comes to retirement income. So fasten your seatbelts – and get ready for an even bumpier ride
The fact that most of us are living longer means savings are under even more pressure. Living longer should be great news – but not if our circumstances are so reduced that our existence is actually miserable. The two reports highlight very different aspects of retirement income. The ASFA retirement standard shows the very real impact of the changes made in the last Budget – retirement is essentially 25–27 per cent more expensive. This adverse effect for relatively low income earners, while tax concessions on super remained unchanged, was clearly inequitable and so it is helpful to see what the real numbers are when it comes to living a half way decent life in retirement.
Secondly, the somewhat more problematic Australian Retirement Vision Survey conducted by Rice Warner raises some interesting questions. It is always useful to ask, ‘Who benefits?’ when a company commissions a report. In this case the beneficiary is financial services company State Street Global Advisors. So the conclusions shared in this report must be read in the context of a financial services company that stands to benefit from Australians seeking financial planning advice. Interestingly, the report notes that those who sought financial advice have found it ‘very worthwhile’.
Hmm. Really? More to the point is the Shadow Shopping research conducted by ASIC in 2010, which found the exact opposite – those seeking advice were usually given poor, if not downright damaging, advice. The percentage of ‘adequate’ advice was 58, poor advice 39 and ‘good’ advice was a miserable three per cent. The statement that ‘many Australians remain unsure about the benefit of financial advice and the best way to access it’ is true, and for a very good reason. Too many advisors have been found to be unethical and they have actually managed to reduce rather than increase their clients’ nest eggs.
So where does this leave those planning their retirement income? Not very well off, to be brutally honest. The 1 July 2017 changes to Age Pension entitlement mean many middle income Australians will be ineligible for a part pension, despite years of saving. The fact our government has stalled the mandated Superannuation Contribution Guarantee at 9.5 per cent makes a huge ($20,000) difference to the super balances of the average Australian. Finding trusted advice is like locating a needle in a haystack. So as I said, fasten that seatbelt, given the current conditions, Australian retirees are in for a REALLY bumpy ride.
What about you? Have you found the amount needed for a comfortable retirement is now out of your reach? Have you sought retirement income advice? And if so, was it helpful?
