Research released by the Financial Services Council (FSC) this week shows a $1 trillion shortfall in retirement savings for Australians who live longer than expected.
The FSC’s Longevity Savings Gap Report models the shortfall in retirement savings for those working Australians who live into their 80s, 90s and beyond.
“This research is groundbreaking as it is the first time that the total retirement-savings shortfall for those Australians who live longer than life expectancy has been quantified,” said John Brogden, chief executive officer of the FSC.
“The $1 trillion shortfall is astonishing. It’s critical that the government uses the Super Roundtable to act now to minimise the long-term impact on the shortfall on the federal budget.
“We commend the government for legislating 12-per-cent superannuation contributions effective by mid-2019. However, this will not solve the gap for the current workforce, which is the basis of our report.”
Live long and, er, prosper?
The report concludes that the shortfall in retirement savings is substantial for those who will live longer than life expectancy, requiring them to be dependent on the Age Pension at a stage in their retirement when they will face higher health and aged-care costs.
The FSC believes the report is the first of its kind and says it is designed to inform public debate on the intergenerational funding challenge facing the Australian Government.
“The time is right for the government to implement robust policies to address the retirement savings shortfall,” Brogden said.
Examples highlighted by the Longevity Savings Gap Report include:
- A 50-year-old male earning $61,700 will have a personal shortfall of $170,906 if he outlives 75 per cent of his peers;
- A 30-year-old female who is currently earning $53,500 will have a personal shortfall of $292,261 if she outlives 75 per cent of her peers.
Mind the gap
Brogden believes extending working lives must be part of the national conversation on retirement.
“Our research shows that for every additional year Australians work the national superannuation savings gap is reduced by $200 billion,” he said.
“With life expectancy now 79 for men and 84 for women, compared with 73 and 80, respectively, in 1992 when the superannuation guarantee was introduced, the time has come to consider whether the superannuation preservation age of 60 is appropriate.
“Currently, many Australians have to wait seven years from the time they retire to the time they can access the Age Pension.
“Reducing this time to five years will ease the financial pressure for Australians to have enough to live on in their retirement.”
Hey, it really makes sense that the Government has reduced concessional contributions for older Australians. I’m not talking 50 year olds, I mean those 60 and over. The 60 year olds have a limited window of opportunity to top their retirement savings. The double whammy for some is that they also need to make up the losses created by the GFC. An extra $25,000 of concessional contribution if left untouched for 20 years and earning a consisten 6% (untaxed) will add another $68,000 to the retirement pot. What about a concessional contribution I hear you cry? Well where is the fairness in that?
It would be interesting to see a study into whether working longer actually contributes to living longer. My experience is particularly with males, when they retire many lose direction, their health fails and they end up dying. There is much to be said for feeling useful on way or the other money matters aside. In the end I guess it is whether you continue working because you have no other financial option or you continue to benefit from the social aspect of being more involved continuing to be in the workforce for other mental health reasons.
Money doesnt guarantee happiness.
With respect, the first two comments show how difficult it can be throw off the prejudices of the past. The community response to older people working needs a real wakeup call based on reality and responsibility. It must not be sidetracked by outdated thinking.
There is plenty of reliable evidence to show many ‘older’ people make decisions better (based in part on experience), are more reliable and are as adaptable as many younger people. They are particularly a resource the community cannot afford to waste, especially with the looming longevity-induced budgetary problems.
The FSC paper is very constructive but as well as restricting access to superannuation I would have also liked to have seen suggestions to more fairly manage access to the Age Pension to those most deserving of it. Age and assets alone are an outmoded basis for allowing access anyway and age in particular sets unrealistic retirement date benchmarks for the community.
A recent paper for the Human Rights Commission by Deloitte is also worth a read. It shows there is already a rising trend of those older people who can or must work longer continuing to do so and offers constructive suggestions to support this trend.
We need to devise an integrated response to older people working, with better policies and perhaps more appropriate incentives. We need to discard old-fashioned and ignorant attitudes about people staying in work longer than they used to. After all, we are living a good deal longer too and in many cases, in pretty good shape (based on our research).
Advisers are well placed in the community to reinforce the importance of more older people continuing to work if they can.
Sue, I agree. As an employer having the choice of employing a younger person or someone who is say, 60 +, I’d go with the younger. They are generally much more tech savy and keen to work. How would a small business manage with an older person who had health issues or was perhpas reluctant to upgrade their skills? Technoligal changes are moving at a pace that few of us can keep up with let alone an older person. I belieive the idea of older people working longer is really wishful thinking which makes the retirement income issue an even bigger problem than we think
Working longer is fine provided there are appropriate jobs for older Australians. Dealing with the physical and emotional stress of working to an older age is already showing up in workers over 60.
Maybe the Govt should immediately scrap all tax on super contributions and earnings as a way to boost super savings. What they are doing in taxing super is robbing Peter to pay Paul, ie having the money now and hoping that the future will take care of itself!