Happy retirement a fantasy for many

Australia’s retirement income system is broken.

Four out of five retirees say they are concerned that their money won’t last, while Mission Australia has issued a call for urgent action to reduce the number of older Australians being pushed into homelessness.

A massive 81 per cent of older Australians are concerned they will outlive their savings, according to the YourLifeChoices Retirement Affordability Survey™.

That’s a precarious situation for the majority of Australia’s 4.5 million retirees (about 20 per cent of the population) with half that number forced out of work due to health problems (31 per cent) or because they were unable to find ongoing work (25 per cent).

The reality is that today’s retirees are highly likely to have not fully retired, with many doing contract or part-time work, while others are regular volunteers and some full-time carers.

Sadly, much of the political spin on retirement centres on the significant misconception that older generations have had it “far better” than younger people, with housing (un)affordability and high HECS debts used as evidence of this intergenerational inequity.

But very little attention has been paid to two long-term policy shifts that have led to a division of retirement into three classes of the good, the bad and the ugly – three very distinct retirement tribes identified by YourLifeChoices.

What are these policy shifts?

The long overdue introduction of universal superannuation by the Keating Government in 1992 was a great policy initiative but, in retrospect, very poorly structured.

It was positive because it addressed the need for non-white collar workers to have a mandatory savings plan to supplement (note, not replace as is often claimed) the Age Pension.

The system is poorly structured, however, because the super contribution is based on a flat percentage of whatever you earn. So, if you earn $200 per week, the Superannuation Guarantee contribution (SGC) ensures that $19 per week, or $988 annually, is added to your super savings. If you earn $2000 per week, your mandated super contribution is $190 weekly or $9880 annually.

The higher income earner may also have enough spare income to take advantage of salary sacrifice legislation and contribute even more. Thus, the rich get richer and the poor remain poor, courtesy of the superannuation rules. This disadvantage is amplified throughout retirement and during an individual’s final years.

The less obvious but longer-term shift in policy is that of retirement risk, whereby the once expected defined benefit pensions have almost been phased out. This means that almost all retirees are now required to manage their own retirement income savings, whether large or small. Very few Australians have sufficient financial literacy to do this. The research does not lie. It shows that most superannuants typically resort to a ‘set and forget’ investment position within their retail or industry super fund, thus forgoing potential gains in the earlier years of investment.

And those who run their own self-managed super funds achieve a relatively poor rate of return, suggesting that their decisions have not made the best use of their savings. Again, those with enough money can employ professionals to minimise their tax and maximise their investments. Those who cannot afford ongoing professional financial advice are usually at the mercy of the market – a capricious beast, at best.

The result of these diverging retirement income scenarios is the creation of three distinct retirement tribes. These are:

  • Affluents – couples or singles who are self-funded homeowners (29 per cent)
  • Constrained – couple or single homeowners on a full or part Age Pension (53 per cent), and
  • Cash-strapped couple or single renter on a full or part Age Pension (18 per cent)


Put simply, the affluents are those featured in advertisements for cruises, up-market guided tours and high-net-wealth investment products. This retirement tribe maintains a strong sense of dignity and choice by the very fact of its independent wealth. Such retirees are able to afford reliable housing, health care, regular holidays and social outings. Which wine to match with dinner or where to go for coffee, is often the question of the day.

The constrained couple or single household is just that. Home ownership means a retirement which has stability, but exists on a full or part pension, while maintaining the home, covering health care costs and trying to afford regular outings is a juggling act. “Can I afford the house or car repairs?” and “Is health insurance still affordable?” are both questions du jour for this tribe.

And then there are the cash-strapped single or couple renters, on a full or part Age Pension. This tribe is really doing it tough. Such households typically spend about 33 per cent of their limited income on housing, and only five per cent on health care, compared with the affluent couples or singles who spend just 14 per cent on housing, but 10 per cent on health care.

This means that cash-strapped retirees are probably choosing not to pay the high costs of health insurance and/or are delaying important tests or procedures until there is sufficient cash to cover them. The question of the day is not where to go for coffee, but when you might next be able to afford one.

Australia has traditionally been a world leader in social reforms, most notably the vote for women, awarding an Age Pension and, more recently, anti-smoking legislation. But we are now the third meanest nation in the OECD when it comes to the percentage of GDP spent on the Age Pension (3.5 per cent, compared to the OECD average of seven per cent).

There is no ageing welfare blow out. This is a political confection to support the notion of a budget crisis when a government prefers to award largesse elsewhere – notably in negative gearing concessions for property investors or reductions in company taxes.

Federal governments have many levers at their disposal to encourage a more level playing field for those saving for, or in, retirement. One solution to the growing disparity in retirement incomes, as evidenced by the above three tribes, is to bring in a universal Age Pension, paying an agreed safety net income to all citizens aged 65 and over.

With one pen stroke, this would remove the massive bureaucratic burden associated with defining, checking, implementing and policing the current Age Pension assets and income tests. The more widely distributed pension could be funded by reducing the overly generous super concessions used by a narrow band of wealthier Australians, mainly in the form of estate planning strategies.

The modelling for such a pension was undertaken by The Australia Institute in 2014 (Sustaining us all in retirement: The case for a universal Age Pension). The sums work. The Department of Human Services paid $44 billion in Age Pension entitlements during the past financial year, while superannuation concessions cost taxpayers more than $50 billion.

While it is true that the average Australian retirement nest egg is better than those of citizens in most other nations, once again the “average” masks an awful retirement reality for many older people.

Only a full review of our retirement income system will be able to address the fundamental inequities within.

Do you believe the system is broken?

Related articles:
Seven retirement mistakes
How much is enough
Making the transition

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