Research shows retirement income policies make Aussies wealthier

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Germany is often praised for its strong economy and forward-thinking economic policies, but new research suggests Australia’s retirement income system provides better outcomes.

The research, conducted by the University of NSW, showed that the average Australian household was wealthier than the average German household and that this was partly due to the differences between the retirement income policies of the two nations.

“Gaps in wealth levels and home ownership patterns between Australia and Germany are partly due to differences in their public policies,” explained Dr George Kudrna, senior research fellow at the ARC Centre of Excellence in Population Ageing Research (CEPAR).

Dr Kudrna said that German households had a much higher savings rate than Australian households (11 per cent of their disposable income compared to less than 5 per cent), the average Australian household was significantly wealthier thanks to Australia’s tax and pension system.

“We looked at the possibility of adopting Australian public policies in Germany and our modelling showed that in the long run, this would result in large increases in the country’s wealth, home ownership and welfare of future households,” Dr Kudrna explained.

In 2018, the average household net wealth in Germany was approximately $680,000, while Australia’s net wealth was $1.022 million – more than 50 per cent higher.

Dr Kudrna said that the difference in net wealth between the two nations could be attributed to the differences in the Age Pension, superannuation and levels of home ownership.

“In 2018, about 70 per cent of the age-eligible population in Australia received the Age Pension, with the remaining 30 per cent being fully self-funded,” Dr Kudrna said.

“Out of the age pensioners, over 60 per cent received the maximum benefit (full pension) and the rest received a smaller benefit (part pension).

 Overall government expenditures on public pensions (including the Age Pension) stood at roughly 4.3 per cent of GDP in 2018.”

The German public pension system covers more than 90 per cent of the population and is covered by a pay-as-you-go system, which means that payroll taxes from workers are directly used to finance pension benefits.

Public pensions in Germany are also paid at a much higher replacement rate than in Australia.

Private pensions in Germany, the equivalent of our superannuation, also showed a vast disparity in the wealth between the two countries.

Superannuation is Australia is mandatory and covers around 95 per cent of Australians, which means that around 20 per cent of total household wealth is held in superannuation funds.

By contrast, Germans hold less than 5 per cent of their wealth in retirement accounts.

While in the end Australian households end up wealthier than their German counterparts, the research showed that Aussies also end up taking on more debt to achieve this wealth.

Dr Kudrna said that while Australia’s mandatory superannuation system had an effect on disposable income, it did not stop Australians from owning their own home, but instead meant they took on more debt.

“People borrow more in the economy with compulsory superannuation,” Dr Kudrna explained. “If you look at the proportion of homeowners, the number of households with a mortgage has increased significantly.

“So, while we are a more asset-rich nation, we are also more indebted than the average German household.

“Only 44 per cent of German households own their place of residence compared to Australia where the home ownership rate reaches almost 70 per cent and the owner-occupied housing is the largest component of total household wealth,” Dr Kudrna said.

Dr Kudrna explained that the research on the wealth of households across Australia and Germany showed that our local policy settings showed we were doing something right.

“The structure of current Australian tax, pension and superannuation system performs well, and it supports home ownership, wealth accumulation, overall economy and welfare across income distribution,” Dr Kudrna said.

Are you surprised by these findings? Does Australia’s superannuation system help ensure Australians are relatively wealthy? Are you worried that the early access to super scheme to help with the pandemic will undo some of this good work in the coming years?

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Written by Ben


Total Comments: 9
  1. 0

    The conclusions seem aimed at a predetermined opinion.
    All hail our (flawed) pension system.
    The Germans have to save a lot more before they can purchase a house.
    20% more of the German population receive their pension. They don’t have to keep their wealth in Retirement Accounts as the Government will pay them a proper pension where here, a couple must hold about $1.9 million in assets (excluding their house) to match the max that a couple on the pension can receive due to Australia’s bad pension policy and the current low return on share investments.

    • 0

      Still think I would rather live here than in Germany. Can I ask how kram would improve our “flawed” pension system?

    • 0

      I suspect Kram would agree with me that the pension system needs urgent reform to either eliminate the unfair assets test or raise the threshold much, much higher so that people are not penalized for saving for retirement, and those who save well don’t end up poorer than those who save less (which is the current situation).

      I don’t know if I’d rather live in Germany or not, as I’ve not experienced life there, but I agree that this article is a load of garbage, comparing apples and oranges and making totally irrelevant half-baked comparisons. And I agree that the German Government has got it right paying a proper pension to people who saved and planned instead of persecuting them for having done so.

    • 0

      Agree with most here. Get rid of the assets test and just have a universal aged pension. Then all aged people just included in the tax system like everyone else. Simpleness and save billions $$ for govt with all the bureaucracy associated with centrelink etc.

  2. 0

    I found this article full of holes.
    It does not take into account the cost of living in both countries
    It does not tell you why the Germans can save more
    It does not tell you why Australians are more in debt

    • 0

      I agreed with you tobymyers, did not make any sense the comparison, is done by some person under a dope, for us to go anywhere will cost us a fortune, for Germans they can drive anywhere they want, buy what they want, get better deals anywhere, is incomparable that report.

  3. 0

    Ho hum, another academic with time on their hands and a fat research grant who is comparing apples and oranges.

  4. 0

    I agreed with you tobymyers, did not make any sense the comparison, is done by some person under a dope, for us to go anywhere will cost us a fortune, for Germans they can drive anywhere they want, buy what they want, get better deals anywhere, is incomparable that report. To add the Germans get their pensions in Euros which is almost double to our currency prices in Germany are more cheaper than here.

  5. 0

    A lot has to do with our national obsession of home ownership. Also a German Rentner (age pensioner) is proud to be one not like here with the SFRs looking down on them. In Germany everyone over a certain age is a pensioner, same as in Switzerland where my family lives. Both my sisters are pensioners from age 64. There is no asset or income test, no exempt home ownership only taxes on all income combined. One sister (69) still works 4 days a week and gets the pension (monthly of about A$3900) and owns a home. The other never wanted property but has about $1.5 million in assets and still has the same pension.
    But there are no freebies, no concessions for meds, transport etc. For poorer people they have social spending provisions but they are monitored like here with the Centrelink Basic Bank card. Also, everyone has to have health insurance, it is compulsory like it was here before Medicare.
    Cost of living in Germany is about the same as Australia but they do have a 19% Mehrwertsteuer (GST). For the climate, however, I like to live here and have done so for 50 years in November. Maybe an article could be written about the differences for oldies in both countries.



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