- New CSIRO-Monash research reveals a retirement wealth gap of 27% and 39% for indigenous male and female workers, respectively, when compared with the median non-indigenous male worker.
- Non-indigenous female workers face similar retirement outcomes to that of indigenous male workers.
Only 20% of full-time employed indigenous workers will accumulate enough superannuation savings to maintain a satisfactory standard of living in retirement. - Landmark research on retirement adequacy for indigenous workers indicates that indigenous full-time workers will retire with approximately 27% less in superannuation savings, on average, than non-indigenous workers.
This translates to potentially $165,000 less in superannuation over a 40 year working life for the average indigenous worker at age 65.
The study conducted by Griffith University researchers Assoc. Prof. Robert J. Bianchi, Adjunct Prof. Michael E. Drew, Dr Adam N. Walk and Dr Osei K. Wiafe, as part of the CSIRO-Monash Superannuation Research Cluster Program, models the superannuation balances of a full-time employed indigenous worker with that of non-indigenous worker over a 40-year investment horizon.
Assoc. Prof. Rob Bianchi said: “Our study of the lifetime impact of earnings differences on retirement outcomes shines a spotlight on the extent to which disparity in income levels today results in a significant retirement wealth gap after a 40-year career.”
The median indigenous weekly income is currently around 23% lower than the comparable non-indigenous income (ABS Average Weekly Earnings, 2015).
Retirement adequacy
Assoc. Prof. Bianchi said: “A key concern raised by our research is that only one in five indigenous Australians, compared with one in three non-indigenous Australians, will be able to accumulate enough superannuation assets to allow them to maintain a satisfactory standard of living in their retirement”.
This is based on ASFA’s estimated income of $42,569 per annum which is required for a comfortable retirement for a single retiree.
The study assumes that participants contribute 9.5% of their pre-tax income into their superannuation fund until retirement at age 65, and that current median income levels and historical asset returns continue over this investment period. Asset allocation is based on a typical default fund.
Assoc. Prof. Rob Bianchi said: “Our research indicates that while the mean superannuation balance for non-indigenous Australians at retirement is 15% lower than what is required for a comfortable retirement, the mean balance for indigenous Australians is 46% lower than this critical level.
“This means that a significant proportion of indigenous full-time workers will still need some form of government assistance to provide even a modest retirement income.”
Prof. Deborah Ralston, Cluster Leader, Monash-CSIRO Superannuation Research Cluster said: “The lower retirement outcomes for indigenous workers identified by this research reflect lower income levels relative to non-indigenous Australians and the urgent need to address this issue. Of course, an even larger issue is that the estimated life expectancy at birth for indigenous people is around 10 years less than it is for non-indigenous people.
“These findings underscore the important need to address indigenous disadvantage in terms of education, employment and life expectancy as highlighted in the recent Close the Gap Prime Minister’s Report 2016.”
Retirement wealth gap
The modelling results reveal a significant retirement wealth gap of 27% and 39% for indigenous males and females, respectively, when compared with the median non-indigenous male worker (as shown in the following table).
Assoc. Prof. Bianchi said: “Our results also indicate that indigenous males will retire with a superannuation balance that is very similar to that of the non-indigenous female worker who faces a retirement gap of 28% relative to that of the male non-indigenous worker.
“Indigenous females will achieve the lowest average retirement outcomes and potentially face the biggest financial challenges in retirement.”
Implications for policy makers and superannuation funds
He said: “Closing the income and life expectancy gaps between indigenous and non-indigenous Australians will significantly improve the retirement outcomes for indigenous Australians.
“Policies that can improve the education, employment and income outcomes of indigenous Australians will translate directly into higher levels of superannuation savings for these individuals.
“Policies designed to increase the life expectancy of indigenous Australians will also extend the non-working phase for these individuals who are more likely to experience a shortened retirement.”
This study was prompted by discussions with members of the Aboriginal and Torres Strait Islander community at a 2015 AIST Indigenous Super Summit which highlighted the lack of data collected on indigenous superannuation fund members both by superannuation funds and the Australian Bureau of Statistics.
Assoc. Prof. Bianchi said: “It will be important to collect and gain more granularity in the data on indigenous super fund members to enable further research in this area and to ensure superannuation funds can develop appropriate retirement solutions for these members.”
Prof. Ralston noted that this paper is one of 11 working papers (focusing on superannuation and the economy, and the needs of Australians over 60) to be released in 2016 by the multi-disciplinary international research team that forms the CSIRO-Monash Superannuation Research Cluster.
