Australians are planning to retire later as the countdown to the new superannuation system, due to start on July 1, commences. But they will be leaving the workforce with balances significantly below levels that will deliver a comfortable retirement.
New research from survey group Roy Morgan shows the average age of those planning to retire in the next 12 months has jumped to 61 from 58 in 2014.
The expected retirement age is the highest on record and surpasses rises following the global financial crisis, when market-based investments were hit hard.
In 2008 the average expected retirement age gleaned from Roy Morgan surveys was 57.5 years. It had risen to 59.6 by 2010 as “people chose to work longer in response to shrinking investment balances”, Roy Morgan’s industry communications director Norman Morris told The New Daily.
Mr Morris said a combination of the new superannuation system and the tightening of the age pension assets test were behind the change.
“As we have seen, recent changes to superannuation rules and pension eligibility appear to be impacting on retirement age, with the result that people will retire later. This is a positive for government retirement funding but could have negative ramifications for unemployment levels (as people work longer),” Mr Morris said.
That uncertainty, combined with low interest rates which cut returns for retirees, was driving more conservatism among those wanting to retire.
While retirement balances have increased in recent years, those planning to leave the workforce at an average age of 61 years will find themselves with retirement balances significantly below what is necessary to deliver a comfortable retirement.
Roy Morgan found that the average balance for those on the cusp of retirement was $286,000 at the end of 2016, a rise of 3.6 per cent from two years earlier. Interestingly, the average holding of non-superannuation assets fell in relative and absolute terms to $106,000 compared to $117,000 two years earlier.
When the net debt position is factored in, the average balance comes back to $268,000. While assets have grown, average debt for those planing to retire has declined 10 per cent to $18,000 in the last two years of the survey.
But those figures will not deliver the sort of retirement that many people hanker for. The Association of Superannuation Funds of Australia (ASFA) says a comfortable retirement for a couple demands an income of $59,619 a year, while for a single it’s $43,372.
To achieve those income figures, the Industry Super Australia calculator shows a couple would need a joint balance of $775,628.
The Department of Human Services recently announced new asset limits for those receiving part pensions of $542,500 for single home owners and $816,000 for a couple.
All these figures are well above the average gross wealth per person ($286,000) of the intending retirees in this survey. Those retiring at 61 with a balance of $286,000 wanting a retirement income at the comfortable level of $43,372 would exhaust their super by age 67, the calculator shows.
Averages can confuse
Averaging of wealth figures across the community leads to a false picture of the value of non-superannuation assets for many people, financial advisers Dixon Advisory said in a submission to the Senate Economic Committee on the objectives of superannuation.
While according to official figures, Australians own on average $85,000 worth of residential property investments outside their own homes, Dixon says only one in five households have residential property investments.
The average for share investments held outside super is $37,500 per household but only one in three households own equities. And while holdings of business assets per household is said to be between $30,000 and $45,000, only one in eight households own business assets.
Therefore, governments need to take account of wealth inequalities when designing policy.
“The danger is that policy proposals formulated on the basis that households will save the same or similar amounts outside of the superannuation system (i.e. through private savings) will not be successful in improving the financial wellbeing of Australians in retirement or in improving the fiscal sustainability of the Government’s long-term outlays,” Dixon’s submission says.