Report: Australians may have to settle for less in retirement

The economic impact of COVID-19 is heightening the financial pressure on retirees.

Desperate senior couple counting money from retirement

The economic impact of COVID-19 will mean that many Australians will have to work longer, and others will have to settle for less in retirement, according to a wealth management expert.

Wealth management group Mercer released its Global Pension Index on Tuesday, which included an assessment of the impact of COVID-19 on retirement systems around the world.

Lead author of the report Dr David Knox, who is an actuaries expert, said the pandemic was heightening the financial pressures retirees face and adding to retirement insecurity.

“The economic recession caused by the global health crisis has led to reduced pension contributions, lower investment returns and higher government debt in most countries.

“Inevitably, this will impact future pensions, meaning some people will have to work longer while others will have to settle for a lower standard of living in retirement,” Dr Knox said.

“It is critical that governments reflect on the strengths and weaknesses of their systems to ensure better long-term outcomes for retirees.” 

With governments around the world taking on more debt to deal with the effects of COVID-19, there are real fears that this will restrict the ability of future governments to support their older populations, either through pensions or through the provision of other services such as health or aged care.

To help alleviate the impact of COVID-19, governments have deployed a diverse range of responses to support their citizens and pension systems.

Professor Deep Kapur, director of the Monash Centre for Financial Studies (MCFS), said that many governments around the world have responded to COVID-19 with substantial fiscal stimulus and central banks have adopted unconventional monetary policy. 

“The outlook for investment returns is muted while volatility may be elevated, adding to the normal challenges of risk management in a pension portfolio,” Prof. Kapur said.

“Additionally, some governments have allowed temporary access to saved pensions or reduced the level of compulsory contribution rates to improve liquidity positions of households.

“These developments will likely have a material impact on the adequacy, sustainability and integrity of pension systems, thereby influencing the evolution of the Global Pension Index in the coming years.”

Australia’s early access superannuation scheme allowed for those who had taken an income hit of 20 per cent or more due to the pandemic to take up to $20,000 from their nest egg.

Australia still ranked fourth overall on the Global Pension Index, but each of the three countries ranked above Australia (the Netherlands, Denmark and Israel) had a contribution rate of 12 per cent or higher.

Australia also ranked only 14th for retirement income adequacy.

All three of the nations above Australia on the list also have a universal state pension.

Australian Institute of Superannuation Trustees (AIST) chief executive Eva Scheerlinck said the fact that Australia recorded a drop in two key categories of the index this year, highlighted the need for the government to commit to the 12 per cent superannuation guarantee.

“Previous analysis by Mercer and AIST has shown that low paid, young Australians will bear the brunt of an estimated $100 billion shortfall in retirement savings due to the COVID pandemic,” Ms Scheerlinck said.

“The COVID early release scheme unfortunately forced many people to choose between poverty now or poverty in retirement,” she said. “Today’s release from Mercer confirms that poverty in retirement is a real possibility for millions of Australians.

“The long-term impact of this will mean older people, especially women, will need to work longer and have to settle for a lower standard of living in retirement,” Ms Scheerlinck said.

Dr Knox agreed that the pandemic had increased gender inequality in the provision of retirement income.

“Even before COVID-19 disrupted economies across the world, many women faced retirement with less savings than men,” Dr Knox said.

“Now, that gap is expected to widen further in many pension systems, particularly in the hardest hit sectors where women represent more than half of the workforce, such as hospitality and food services.”

Are you worried about having to settle for a lower standard of living in retirement? Are you worried that the government will cut support to retirees in future years? 

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    To make a comment, please register or login
    21st Oct 2020
    With the feds already increasing pension age to 67, it may only be a few years before they revisit their 70 'idea'? Concerningly Jobseeker is becoming a default pension for 60-66 yo.

    The statement that 'the outlook for investment returns is muted' was surprising as super returns are rebounding for most funds, so not all may be glum. Mind you, super was meant to SUPPLEMENT and not replace the pension when first implemented.
    21st Oct 2020
    revisiting 70 is inevitable so long as australian average life expectancy continues to increase. Australia is not alone in raising the retirement age.
    21st Oct 2020
    Older Australians should remember, you vote for what you get and you get what you voted for, conservative governments never give, they spend every term in office taking away, they regard your pension as a gift and theirs as a right, pensions are going backwards, as is healthcare/aged care, in fact any type of care since the election of the current coalition government, dividends are down, bank deposit rates are down in fact any measure used to improve older peoples lives and their standard of living is going backward and its not by accident its by political ideoplgy and policy.
    21st Oct 2020
    Spot on
    21st Oct 2020
    The big problem, braddybear, is that Labor will do no better - not for retirees or anyone else. Their policies make no sense when analysed carefully, and simply cannot work to elevate living standards for the less well off.
    21st Oct 2020
    too many folks in Canberra stubbornly remain under the misconception that managing the national economy is like managing a small business or household budget and make choices for efficiently allocating our economic resources accordingly.
    22nd Oct 2020
    Once this government put all pensioners on their Cashless Indue Card there will be a lot less pension to spend anyway with the rise in fees - plus charges for bill payments being refused. Then of course you have the embarrassment of having the card declined 99% of the time you go grocery shopping. Oh and lets not forget having to ask permission when you want to buy ANYTHING outside their strict guidelines, i.e. new fridge, new tyres for car etc - which will most likely be refused because hey they can.
    AND you have no right to appeal any decisions Indue make on YOUR behalf regardless of if it means you lose your home /car /end up massively in debt.
    Welcome to the liberal/twiggy world
    21st Oct 2020
    Women have always had less super, if they had it at all, and lower standard of living, except for a fortunate few. Nothing new there.

    Will the Morrison government improve outcomes for women in work or in retirement? Not likely.
    21st Oct 2020
    Well what exactly do you want?

    Higher rates of pay? Special employer contributions for those with XX chromosomes?

    We keep dancing round this subject. Women work less they earn less they therefore get less super. This is NOT a gender issue.

    If women want equality they have it. They are simply not accessing it then bleating about it. If ytou want more super you have to save more and to save more means sacrificing. Do that and the problem would be virtually non-existant. After all a man is NOT a retirement plan!!!!
    21st Oct 2020
    Does this mean that our current pensions will be cut! It is bad enough that I didn't get to pay super till the last few years of my working life but I didn't get a huge wage as I worked for a charity and my wage wasn't a fortune but I learnt to live off it.
    21st Oct 2020
    many people were paying into super in 80s however if you are on a low wage then paying into super will not make you wealthy upon retirement.
    23rd Oct 2020
    Many people paying into super in the 80s had all their money stolen by the crappy funds that were operating at that time. I got a bill because employer contributions were less than the admin fees. A particular union whose members were doing dangerous work did a secret agreement with the employer to have workers comp insurance premiums paid out of the employee's super contributions. Result: after decades of working, thinking their super was accruing, employees discovered they had nothing. A semi-government employee I know well had $380,000 in super at near retirement age (late 80s). At retirement, he was advised 'the fund made some bad investments' and he had only $80,000.
    21st Oct 2020
    When most people who trim the budget house or business they usually start at the top
    Feel free you decision makers to do the same
    My entitlements cost The Australian gov far far less than any. Off the political parties cost the Aus taxpayer
    Dave R
    21st Oct 2020
    Set yourself up for retirement with everything you need to lead a comfortable life and importantly be home owners and debt free. My wife and I did that and now are full age pensioners and living comfortably without a worry in the world.
    21st Oct 2020
    I’m surprised as most full age Pensioners I know are doing it tough and watch every cent. They worry about rising costs and concern for unforeseen expenses even when they own their own home
    21st Oct 2020
    my folks are same Dave. Debt free and owning a home makes retirement pretty comfortable when you prefer a modest lifestyle.
    21st Oct 2020
    My mother was the same and lived a comfortable lifestyle. If I had only my superannuation I would get a modest pension and together that would be quite sufficient to live on. During the Pandemic I have stopped the income from the SMSF and am still saving money from my work suparannuation.

    I do not view the age pension as an entitlement so have no problems in not being on the pension especially when in normal situations I spend three to four months a year involved in intnerational travel in Asia and Europe and some travel within Australia.
    22nd Oct 2020
    Maybe the OAP is eneough for older pensioners. Younger retirees these days don’t just stay home but like to have sports, hobbies, interests, nice clothes and go out plus some holidays. I wouldn’t want to have to do that on $35K a year
    21st Oct 2020
    Given this current Government have already declared admiration for Margaret Thatcher it is not unreasonable to expect austerity measures down the track. Particularly when considering the tax cuts that are to be implemented.
    Austerity measures, as practiced by Conservative Governments in the U.K. involve cutting expenditure as a priority. This means anything considered to be Social Welfare, LNP here often refer to pensions as exactly that, is first to be cut.
    We are being treated to the gloss from Morrison and Frydenberg at the moment but many economists have had time to look at the budget more closely and there is a fair bit of smoke and mirrors involved in it.
    21st Oct 2020
    21st Oct 2020
    There's a great idea! When they have to abide by the same as rules and get the same entitlements as us mere mortals maybe they will look to improve things.
    The days of the politician snouts in the trough gravy train have to be numbered...
    21st Oct 2020
    Good luck with that one. We all love the solution, but it's never going to happen.

    21st Oct 2020
    The solution is simple, but neither LNP nor Labor will ever entertain it. Currently, superannuation tax concessions are costing more than the total cost of the OAP, and 80% of that cost is benefiting the wealthiest 20%. That 20% will never need a pension and simply do not need the benefit they are receiving. Lower paid taxpayers are suffering while the government is topping up the massive retirement chests of the wealthy - ensuring they retire with mega millions instead of just a couple of million.

    Change the superannuation tax concessions to be fair - giving EVERYONE a 15% discount on their marginal tax rate instead of a flat rate. Tax high income earners on their superannuation pensions in retirement. Then there will be ample money to pay fair and adequate pensions to all aging who need them, and to maintain a fair benefit system.

    At the same time, do away with the ridiculously unfair and harmful assets test and replace with an income/deemed income test only (or, better still, a universal age pension and tax on all other income).

    The only problem with this obvious and sensible solution is the greedy rich wouldn't stand for it. They want ALL of the cake, not just by far the biggest slice. And it doesn't matter a fig to them who starves so they can gorge.
    Horace Cope
    21st Oct 2020
    It's hard to take seriously any information from a company that has ¾ of it's reason to exist as being about gathering funds into the super system. Of course the pandemic must cause a loss of income and therefore a drop in super contributions in some areas but the other side of a 10% unemployment rate is that 90% of people are employed and attracting super.
    pedro the swift
    21st Oct 2020
    Please name me one countries government which looks after its population rather than itself or big business. Even god has a hierachy, I bet his "angels" have more "perks " than the rest of his inhabitants.
    21st Oct 2020
    You might have to become an angel, pedro the swift, before you fly up to Heaven. At least then you are assured the perks you expect. Free beer for the select few, maybe?!
    21st Oct 2020
    I am not overly concerned about retirement income. I have superannuation from my job, they commenced some 24 years ago and will continue for life, and that is currently in excess of my monthly requirements for income. I also have a significant SMSF which is diversified across investment classes and countries and while there was a significant decrease in value at the worst of the Pandemic it is now above the level that it was at at 1 January and there was a positive gain over the course of the last year despite there being regular withdrawals over eight moths of 2019/2020.

    Much of my discretionary travel goes on international travel visiting friends in Europe and Asia and it is the restrictions on travel that affect me the most.
    22nd Oct 2020
    I agree Alan with the recovery of super. My own has recovered all the loss in April and continues to increase to well abve the pre-Covid-19 level. And I am in a retail fund not SMSF!
    25th Oct 2020
    Remember Pension is a right not an asset driven gift from the government, we all paid taxes for years for the right.
    The government changes the rules depending on how much their perks cost, then they stole the revenue that was to pay for this, all governments are the same, short term gain for a long term pain, look at all the privatisation projects that don't benefit the population as promised.
    The reason that I, and others, are on a pension is because of the greed of governments, we had a plan for our super so we wouldn't have to rely on the pension in our retirement, we could salary sacrifice a larger percentage of our wages while working and planned to have a large super.
    Then the government decided to cut the sacrifice to a lot smaller amount, no good reason was given, and this did not meet our long term plans for a self funded retirement.
    So the pension it is, cut off their own noses from the feeding trough to spite their faces. The Pigs might fly but they will crash land soon.

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