The Financial Services Council released a research modelling report by actuarial firm Rice Warner. The report draws attention to the widening gap between what people need for retirement and their projected superannuation account balances following the deferral of the superannuation guarantee rate increase until 2021.
Analysis into the modelling by superannuation experts Dixon Advisory suggests the figures significantly underestimate the actual retirement savings gap. “The return rates used in the research do not reflect a likely decade of low returns and ignore recent data around forced early retirements”, warned Dixon Advisory.
“The modelling uses gross return rates of 7.5 per cent and inflation rates of 3 per cent yet we know a number of super funds and fund managers in Australia have provided updates that long-term earnings targets of these levels are not likely to be achieved. This will make it harder for savers to grow their capital without making additional deposits.”
In calculating the retirement savings gap, the Rice Warner modelling extends the time people are in the workforce to age 67. However the Productivity Commission’s Superannuation Policy for Post Retirement research paper found almost half of men and over one third of women who currently retire between the ages of 60 and 64 are forced to do so due to health issues or because they were unable to find or keep a job.
Dixon Advisory was keen to point out “The Rice Warner report also contains valuable data identifying people aged 50 years and older are most at risk. This group needs to save between 25% and 35% of their income to reach an adequate level of retirement capital – yet at the same time we have some groups calling for a reduction in the level of allowable superannuation contributions.”
Dixon Advisory suggests that retirement policy needs to consider total wealth and income. Housing in particular forms an important part of people’s financial security into retirement. Renters generally consume a greater portion of their retirement income on housing costs and have less stability and control over these expenses.
“It may be preferable for younger people trying to get into the housing market or facing the costs of raising a young family to have additional employer payments directed to wages rather than super. These issues have significant implications for national policy and the public purse, not just in superannuation but also in employment, training and housing” says Nerida Cole, Managing Director of Dixon Advisory’s financial advice team.
“People can be put off from using the superannuation system when the rules and policy settings do not have the flexibility to deal with the range of circumstances across every day Australians. As a nation we need to consider these issues and work through them to achieve a sound and flexible policy.”
Source: Dixon Advisory
