The retirement adequacy of working Australians is currently at its lowest level since the GFC, according to the AMP Retirement Adequacy Index.
The index has fallen almost 2 percentage points to 69.4 per cent, while projected retirement savings fell 7 per cent to $492,000.
Superannuation was a major driver of these falls with the average worker’s total superannuation contributions falling to the lowest level since the index began in 2006 – at 12.3 per cent of salary compared to 12.6 per cent as at December 31, 2006 – mainly due to a fall in voluntary contribution rates.
The AMP Retirement Adequacy Index used data for the six months from June 2011 to December 2011 from more than 280,000 AMP corporate-superannuation customers to predict retirement adequacy based on 65 per cent of an individual’s pre-retirement income.
The data factors in the increase in the superannuation guarantee from 9 per cent to 12 per cent.
A long-term savings strategy
AMP Financial Services managing director Craig Meller said the drop in voluntary contributions, market volatility and ongoing subdued investor sentiment is impacting overall retirement adequacy and has the potential to adversely affect the future retirement lifestyles of Australians.
“The index shows salary-sacrifice contributions have fallen across most age groups, particularly for older Australians who traditionally put more into their superannuation as they approach retirement, but are now restricted by caps on voluntary super contributions or worried about global markets,” he said.
“Consumer caution is also continuing to impact investment behaviour post-GFC, according to the index, so it’s important our industry continues to focus on educating customers about the benefits of super as a long-term savings strategy – offering individuals a wide range of investment options, including cash, and tax-effective long-term returns.”
Index indications
Key points from the AMP Retirement Adequacy Index:
- Overall retirement adequacy took a hit in the last six months of 2011, falling from 71 per cent to 69.4 per cent.
- The average worker today can expect to retire on just under $49,000 per year, which is largely unchanged from the corresponding projection in June 2011.
- Overall, the projected super benefits for an average retiree fell by 7 per cent to $492,000. This drop, as a result of lower contribution rates, was enough to eliminate the projected gains expected from the introduction of the 12-per-cent super guarantee.
- Average contribution rates fell by 0.2 per cent in the second half of 2011. Contributions from older workers fell over the period, although encouragingly younger age groups, in general, increased their overall voluntary contributions.
- Average balances for females fell less than that of males over the period, causing the gap between genders to narrow. This may reflect different attitudes towards investment risk.
Deloitte Access Economics partner Chris Richardson said the research shows the impact on future governments that the combination of an ageing population and a drop in superannuation contributions may have.
“An increasing proportion of older Australians, coupled with the drop in overall superannuation contributions, could put considerable strain on future governments and taxpayers, as we see more people relying on the age pension to fund their retirement,” he said.
