Any changes to the Age Pension, such as increasing the eligibility age to 70 or changing the indexation method to a less generous approach, will see the role of superannuation become even more crucial, according to the Association of Superannuation Funds of Australia (ASFA).
Such changes would reinforce the need for Superannuation Guarantee contributions to rise to 12 per cent of wages and for assistance for low income earners in the form of the Low Income Superannuation Contribution (LISC) to continue.
ASFA research indicates that men who retired in 2011-12 had average superannuation balances in the order of $197,000 and women retired with average super balances of only $105,000. However, only around one-third of retirees had over $100,000 in super when they retired.
While both average balances and the proportion of retirees with a substantial superannuation balance will rise in the future as the compulsory superannuation system matures, and the rate of compulsory contributions rises to 12 per cent of wages, many will still fall short of achieving the standard of living they need or deserve in retirement.
ASFA CEO Ms Pauline Vamos says moving from indexing the Age Pension to the greater of the increase in the Consumer Price Index (CPI) or average wages in the community would make a big difference to the Age Pension payments individuals and couples would receive.
“If the Age Pension had been indexed to only changes in the CPI over the period from the year 2000 to now, the Age Pension for a single person would now be some $7,000 a year less. Over the last four years, CPI indexation alone would have resulted in the annual single Age Pension being around $2,000 less.
“The ASFA Retirement Standard indicates that a single retiree needs to spend $23,175 a year to support a modest lifestyle in retirement and $42,158 to support a comfortable lifestyle. If only CPI indexation had applied over the last 15 or so years, a single retiree would need around $175,000 more in superannuation savings to support their desired lifestyle in retirement.
“The impact of increasing the eligibility age for the Age Pension is less clear cut. If an individual works for three years longer, they will have more superannuation and will not have to support themselves for as long in retirement, thereby lifting their standard of living in retirement, albeit at the cost of having less retirement years. However, if they are unable to work or choose not to work and do not get any other form of income payment from the government, they would need around $60,000 more in superannuation or other retirement savings.”
More details of the ASFA Retirement Standard are available here.
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