The OECD has released a report comparing retirement systems and Australia isn’t performing as well as you would hope.
According to the 2019 edition of Pensions at a Glance, the relative incomes of those aged over 65 compared to the average incomes of the total population are low at 72 per cent in Australia, compared to the average of 87 per cent across OECD countries. The problem is even worse for those 76 and over, with their relative income at only 64 per cent compared to the total population.
Poverty rates for the elderly are also very high in Australia at 23 per cent, 10 percentage points above the global average.
However, the poverty rate for over 65s has been declining steadily over the last few years, down from 39 per cent in 2007.
Also the poverty depth (which measures how far below the relative poverty line the average income of the poor falls) is relatively low in Australia because the Age Pension, which provides a floor for pensions, is already close to the poverty line.
One of the main problems of the Australian retirement system, according to the report, is the discrepancy between self-employed workers and normal wage earners.
As Australia’s superannuation system is voluntary, there is a vast discrepancy between the self-employed and regular wage earners.
“The self-employed tend to be solely reliant on the Age Pension, giving them a lower replacement rate at retirement compared to employees,” the report explains.
Over three-quarters of the older Australian population (65-plus) benefits from the safety net (Age Pension) compared to roughly one-quarter on average for OECD countries. However, almost 38 per cent of all recipients in Australia have their Age Pension benefit reduced by the means test.
Despite Australian treasurer Josh Frydenerg’s assertion that Australia’s ageing population is a ticking timebomb, the report finds that Australia is a lot better placed than many other nations.
Australia is, in fact, ageing more slowly than the OECD average.
“Given the relatively limited involvement of the government in pensions and the slower ageing process, there is less of an issue of public finance pressure than in many other OECD countries,” the report explains.
“Public expenditure on pensions is projected to remain well below half of that of the OECD average.
“The superannuation system being defined contribution is not subject to financial sustainability issues and, as it will reach full maturity, fewer individuals will be reliant on the Age Pension safety-net.”
Do you think this OECD report makes a mockery of Josh Frydenberg telling older Australians that they need to work longer?
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