The government’s new Intergenerational Report found that the current retirement system was sustainable, despite an ageing population and that it would not be an increasing burden on the taxpayer.

The report projected costs in the retirement system of between 4 to 4.5 per cent of GDP would remain over the next 40 years at a time when other OECD countries expect to see increases of 1.4 per cent of GDP.

The government would examine ways of enabling people of pension age to work longer and ensuring superannuation funds pay out higher amounts to retirees, Treasurer Jim Chalmers said.

However, the super system itself will be more expensive, with super tax concessions projected to increase from 1.9 per cent to 2.4 per cent of GDP over the next 40 years. This, however, will be counteracted by falls in age pension costs.

“The decline reflects a shift towards superannuation as a key source of retirement income and means testing of the age pension to target those most in need,” the report said.

Dr Chalmers told an Australian Financial Review conference on Wednesday that a lot of superannuants were under-spending in retirement.

“Half of retirees draw down the minimum and, on average, people who draw down the minimum will still have about a quarter of their super remaining when they pass on,” Dr Chalmers said.

As a result, the government will review ways to get retirees to spend more.

However, Dr Chalmers’ view was challenged by Ian Henschke, chief advocate with National Seniors.

Dying without super

Quoting a report produced by industry group ASFA in 2021, Mr Henschke said: “The vast majority of people exhaust all of their superannuation well before their death, with a smaller proportion passing on some superannuation to their spouse and with a relatively small proportion undertaking estate planning which benefits other generations.

“ASFA found that 95 per cent of people die with less than $110,000 in their super; and data shows that 80 per cent of people aged 60 and over had no super at all in the period of up to four years before their death,” Mr Henschke said.

However, Industry Super Australia (ISA) stated that recent retirees are doing far better than previous generations.

“About half of the nation’s newly retired (those aged between 65-69) have enough super savings and private savings so that they do not qualify for the pension,” ISA found.

New figures from Super Consumers Australia (SCA) found that cost-of-living pressures mean that higher retirement savings are a necessity.

“It is not all bad news, as age pension increases and positive super fund returns have been working to offset the impact of inflation,” said SCA director Xavier O’Halloran.

SCA’s savings targets are between 3 to 8 per cent higher than last year.

But people who hold their super in a typical balanced fund would have seen their balances grow by about 9 per cent over the same period which would have helped cover the cost-of-living increases.

Reaching goals

“This means people might be closer than they think to their retirement savings goals,”  Mr O’Halloran said.

SCA found that for what those in their late 50s considered was a mid-range retirement in terms of income and comfort, a single would need $317,000 on retirement and a couple $425,000.

A medium level retirement would deliver a single person an income of $47,000 a year while for a couple it would be $69,000 a year. For a low level retirement the figures would be $36,000 and $52,000 respectively while at the upper end it would be $59,000 and $87,000 respectively.

The figures for those already in retirement differ slightly from younger people. That is because they have slightly lower spending patterns and can tap into the age pension for some of their retirement income.

Super balances are improving as the super guarantee rises and more people have had compulsory super for more of their working lives.

“The median superannuation balances held by people in typical balanced funds are getting pretty close to where our savings targets are at,” Mr O’Halloran said.

SCA found that a man in the run up or in the early years of retirement was likely to have $279,000 in super savings while for a woman it was $204,000.

“Women are still a fair way off given the gender gap in super but if you assume a combined male and female total then you get up to $484,000,” Mr O’Halloran said.

Those figures mean that men and couples in the early years of retirement are likely to be making the SCA medium level targets. However, women still fall below those figures.

Mr Henschke said the best thing the government could do for retirees would be to give them the right to work with their income tax being used to balance against pension rights.

“Now we have 66.8 per cent of working age people in the workforce. In Sweden and New Zealand where older people are encouraged to work, the figures are 79 per cent and 72 per cent respectively,” Mr Henschke said.

The New Daily is owned by Industry Super Holdings.