12th Jul 2018
FONT SIZE: A+ A-
Australia’s retirement income is unfair for one group
Retirement income unfair for one group

On the surface, Australia seems to have a reasonable retirement income system. Australia’s compulsory superannuation system, introduced nearly 30 years ago, is often cited overseas as an example of good forward planning. But new research has shown that for one group in Australia, the system simply isn’t fair.

As published in the Australian Financial Review, when you compare 10 countries with similar economies to Australia, it is clear that Australia’s poorest and wealthiest citizens are doing well from the system. Australia’s average income earners, however, are missing out on the benefits. How can this be? And what is the solution to this skewed system?

The ‘net replacement rate’ is a measurement that compares pre-retirement income to retirement income, by dividing a person’s pre-retirement income by their retirement income, to find out how much of their wage is replaced by what they can expect to receive in retirement. Essentially, it shows how much your income will drop after retiring. All these figures are after-tax, so the ‘net replacement rate’ talks about money in your pocket, not money you can’t access.

In a hypothetical case, where an average wage earner in Australia enters the workforce at 20 and retires at 67, their ‘net replacement rate’ is significantly lower than the net replacement rate of a low-income earner or a high-income earner. In English, that means that when low- and high-income earners enter retirement, their income does not drop as much as average income earners, who experience the greatest income drop as they shift from their work to their retirement income.

In Australia, an average income earner’s retirement income is only slightly more than 40 per cent of their pre-retirement income.

Compared to other similar economies, this puts us near the bottom of the list for average income earners – the only country doing worse than Australia is Great Britain. In the Netherlands, for example, average income earners receive 100 per cent of their working wage after retiring. In Canada, it’s above 50 per cent.

This drop has massive implications for quality of life in retirement for a huge number of Australians. It also shows that the system is unfair, as this drop is not experienced by all income brackets. In most other countries, the net replacement rate drops as income rises – the poorest experience the least in income decline, and the wealthiest experience the greatest decline. In Australia, however, those earning 150 per cent of the average income receive 43.4 per cent of their annual wage after retiring, while those receiving the average income receive only 40.7 per cent. How can this be?

According to David Knox of the Australian Financial Review, the answer is twofold. First, while the superannuation system is flat for most income earners, the tax system is progressive. Second, due to the income and assets test system in Australia, average income earners are expected to receive little or no Age Pension during retirement. Knox recommends solving this problem by looking to the Danish system, which pays all citizens part of the Age Pension at a flat rate as taxable income, and pays the balance on an income-tested basis. This universal pension would improve retirement income for average wage earners, who currently receive very little Age Pension, but would have less of an effect on high-income earners, creating a fairer system.

Given that Australia’s projected expenditure on the Age Pension as a percentage of GDP is currently the lowest of all 10 countries included in this comparison, the small increase in spending that this proposed system would entail could reasonably be absorbed by the budget without breaking the bank.

What do you think? Is the Australian retirement income system unfairly weighted against middle income earners? Should the government consider a universal part-pension?

RELATED ARTICLES





    COMMENTS

    To make a comment, please register or login
    MICK
    12th Jul 2018
    11:11am
    Yes we all understand that but the current government has declared war on retirees. Not the top end. Just the rest.
    The lowest paid will qualify for a government pension (nearly all Australians should qualify for one under international comparisons) they get the pension which puts them in a similar category to the top end.
    Anonymous
    12th Jul 2018
    1:01pm
    Another idiotic post by Herr Mick Goebels!
    MICK
    12th Jul 2018
    1:15pm
    And another response by the government funded troll! Never let the facts get in the way of how the story should be played out eh.
    OnlyGenuineRainey
    12th Jul 2018
    2:21pm
    Mick is correct, of course - however much Lieberal trolls resent the truth being exposed.

    The average earner is discriminated against by a grossly unfair system - one that was made far more unfair by changes made by a stinking Lieberal Government that lied to get elected saying they would not make such changes.
    MICK
    12th Jul 2018
    2:23pm
    Thank you OGR. Gets lonely here sometimes.
    Anonymous
    12th Jul 2018
    3:34pm
    Always knew Rainey was a labor troll like Mick
    No substance just lies to get their mate Short-on-integrity elected
    Concerned
    12th Jul 2018
    4:35pm
    Yes mick. I agree with you. We do not have a fair system and people are penalised for not having in the words of prime minister 'aspirations'. There is no reality in looking at people who will, as all of us, get old. But according to LNP it is only the wealthy who deserve attention. A universal income, with a tax system that continues to tax you, regardless of age, dependent on income will even out the sytem. But as we saw when it was suggested that those claiming franking credits and receiving a tax cheque BACK even though they had not paid any tax, there are many who continue to use public ally paid for facilities but honestly believe they do not have to contribute to these. Those with wealth would end up paying tax on their universal income as well as their earnings, those with less would pay less tax and there would not be the present situation with some people having decide between food and near and medical bills. If we do not approach the future aging population with intelligence we will have a crisis. Now is the time to tackle it but LNP are not doing that
    MICK
    12th Jul 2018
    5:54pm
    Whilst the disgraceful manner in which this government talks about anybody who opposes it sickens decent people I generally follow the money trail. That explains a lot on why the LNO behave as they do and it leads to the top end of town with almost every measure.
    You are on the money. I wish the voting public would wake up fast but difficult when the media is a propaganda tool and the bastards try to close down any who tell the true story.
    OnlyGenuineRainey
    12th Jul 2018
    9:02pm
    Hang on a minute, Concerned. Don't liken a fair tax on retirement incomes with the grossly inequitable proposal to deny self-funded retirees their franking credits. Those credits are a refund of tax taken from incomes that should not be taxed, and in many cases they will leave self-funded retirees with too little to live on - far, far less than most pensioners receive.

    I am among those who objected strongly to Shorten's stupid proposal on franking credits, and I'll continue to shout that it's patently wrong to overtax someone just because they invest in shares, when others on higher incomes from other sources pay nothing.

    I have no issue at all with a FAIR income tax on retirement incomes, as long as it is FAIR, and not blatantly discriminatory and cruel to people who worked hard to be self-sufficient and are now less affluent, in many cases, than if they had not.


    BTW. I pay tax - a lot of tax. It just happens to not be income tax because my income is too low to be taxes. But I not only pay hefty indirect taxes. I also save the government some $40,000 a year by being self-sufficient.

    So why should I be taxed at 30% on every cent of my income, when the tax law says income below the tax threshold should be tax free and income just above it should be taxed at only 15%? Please answer that. Franking credits are NOT money for nothing. They are NOT a rort. They are a refund of tax taken from income that is not legally taxable, and as such the refund is absolutely fair and appropriate.

    If some who claim the refund are wealthy and rorting, address that. Set a cap. Or investigate how they are dodging their responsibilities. Don't hang everyone out to dry because of a handful of rorters.
    Rae
    14th Jul 2018
    10:36am
    Yes MICK. Abbott's government attacked the middle and undid all the work of Howard in helping Howard's battlers. No wonder they had to get rid of Hockey.
    80 plus
    12th Jul 2018
    11:39am
    One cause of the problem is the Tax system and the issue of the A.B.N. Taxpayers lucky enough to have an A.B.N on average are negative tax income payers after receiving their tax rebates, child care allowances etc. but still expect all the social goodies provided by the tax system
    greenie
    12th Jul 2018
    2:16pm
    Have no idea what you are trying to say.
    How does an A.B.N. have any affect?
    MICK
    12th Jul 2018
    2:25pm
    I think 80 plus is referring to the ability of tradies to claw back GST.
    OnlyGenuineRainey
    12th Jul 2018
    2:23pm
    Expert economists and actuarians have evidenced that a universal aged pension, combined with fair taxation of retirement income, would cost the nation far less than the current inefficient pension system. Over time, the savings would increase dramatically as impact of removing the deterrent to saving is felt. Additionally, more spending by better off average income retirees would drive growth. It's a no-brainer, if only the politicians actually had brains!
    MICK
    12th Jul 2018
    2:26pm
    Not sure about that OGR but giving the top end tax cuts whilst taking from retirees is obscene. Welcome to the LNP and its rich funding contributors.
    Anonymous
    12th Jul 2018
    2:30pm
    Only shorten wants to take from retirees by disallowing franking credits
    The tax cuts benefit the lower and middle classes most and will help them save more for retirement
    MICK
    12th Jul 2018
    3:15pm
    Only Turnbull comes after retirees repeatedly. Assets test cut down to nonsense level to deny a large number of retirees even a part pension. Forgot that one dear troll?
    Next lie! The tax cuts give peanuts to all but people on $180,000+.
    LIAR! And your employer has the hide to call Shorten a liar on air. The propaganda from scum.
    Concerned
    12th Jul 2018
    4:40pm
    Income franking credits are NOT BEING TAKEN AWAY. what will happen is these can be used to lower tax requirements to zero BUT not below zero. In your version you are taking and taking and contributing nothing. I by the way will loose franking credits BUT AS I PAY NO TAX I THINK IT IS FAIR. I still use roads, hospitals, etc so using public facilities and contributing nothing to them is ridiculous and expecting to get money for nothing is ridiculous. Why don,t you think about it! Thank you Reilly for your comment and intelligent ideas.
    Anonymous
    12th Jul 2018
    5:57pm
    Concerned - you already paid 30% tax
    Hence why you are getting the credits
    Just because you are foolish enough not to want it , do t deprive millions of others who rely on the credits to supplement their OAP’s or not be a burden on taxpayers
    MICK
    12th Jul 2018
    7:49pm
    Another comment from the corrupt!
    OnlyGenuineRainey
    12th Jul 2018
    9:09pm
    Actually, Raphael is right on that point, Mick. If you go to work and your employer takes tax out of your pay, but you don't earn enough to pay tax, you get the tax back. Why, then, should someone who earns too little to pay tax be taxed at 30% just because their income comes from shares? It's WRONG.

    Concerned, are you a pensioner? If so, you are taking tens of thousands - potentially well over $1 million over the course of your retirement - from the taxpayer purse. I take NOTHING, except a few thousand in franking credits, and my income is likely way less than yours. It's less than most pensioners. Yet you want my few thousands of franking credits ripped off me while you rort the taxpayer for tens of thousand that I can't get.

    Sorry, I don't really think pensioners rort. I think they are entitled to their retirement income. But so am I. You are being extremely selfish and unfair suggesting low income earners should pay 30% tax just because their income comes from shares, while higher income earners pay nothing because theirs comes from a government pension.
    Rae
    14th Jul 2018
    10:43am
    Why should shareholders be special in any of this attack on retirees. If it's okay to swipe thousands off retirees receiving part pensions then it's okay to cut the incomes of shareholders too.

    Let's just make everyone poorer except the top dogs. The LNP way.
    OnlyGenuineRainey
    14th Jul 2018
    6:32pm
    Vast numbers of shareholders are among those who lost when pensions were slashed, Rae. I can point to people who lost $12,000 a year in part pension and will lose another $10K a year if Shorten's proposal gets through - leaving them with incomes of substantially less than the basic aged pension until they eat up more than half their assets. How is that either fair or sensible economic management? It just means depriving people of the benefit of their savings and forcing more onto the OAP, which in the end must drive the costs of the OAP up substantially. And It will discourage saving by younger Australians, thus defeating the whole claimed purpose of the superannuation scheme. Seems really dumb to me!
    Rae
    15th Jul 2018
    9:33am
    I agree OGR. I personally lost a promised $200 a week and the card I was promised for 40 years if I just kept giving the money to a retirement scheme.

    The austerity measures were unnecessary and I doubt Shorten will go ahead with his brain fa

    12th Jul 2018
    2:28pm
    I live on 15% of my preretiremebt Income
    Not complaining
    Not greedy either like Mick and the others on here asking for more handouts
    MICK
    12th Jul 2018
    3:15pm
    Is that because you earned $400,000 pa?????
    GrayComputing
    12th Jul 2018
    3:33pm
    Raphael you are rich and so are not part of the real group of pensioners. You have now admitted you are a paid web troll so get of this site forever
    MICK
    12th Jul 2018
    5:56pm
    Yeah GrayComputing. The posts are dribble at best and illiterate propaganda at worst. Unfortunately I have become somewhat intolerant of the trolls and not sure if the message is getting out. Hopefully readers try to get a better understanding of the system which preys on the poor.
    Anonymous
    12th Jul 2018
    6:00pm
    The top 10% (in terms of wealth) contribute 90% of the taxes that go to support pensioners, schools, education , health , keep you safe .....

    You are an ungrateful labor troll Mick
    MICK
    12th Jul 2018
    7:51pm
    And the top 1% earn many multiples of the average wage. Let's do something you have no stomach for: talk percentages. After that your discussion is dead in the water. What a surprise (not).
    Anonymous
    12th Jul 2018
    8:23pm
    Are you thick MIck ? Don’t answer that
    The more taxable income you earn the greater the %age tax you pay going all the way up to 45%
    That’s almost half of every dollar given away to support low income earners , pensioners and all other social services such as free health care and support for the unemployed
    You’re thick and you’re ungrateful and you lie a lot
    OnlyGenuineRainey
    12th Jul 2018
    8:53pm
    What garbage, Raphael. Nobody pays almost half of every dollar in tax. Those who are lucky enough to make the 45% tax rate use every rort in the book to reduce their tax. As for giving it away to support low income earners - dream on! The greedy over-paid leaners give nothing away. They steal, plunder, exploit, take a grossly excessive share of the nation's resources, and pay bugger all for what they take. It's the battling lower middle-income-earners who pay the taxes that keep this nation going - and the massive indirect taxes that hit the lowest income earners and pensioners hardest.

    Mick is not thick, but you are a self-serving, greedy egomaniac.
    Anonymous
    12th Jul 2018
    9:05pm
    Then you’re thick as well Rainey
    How do you explain 90% of the tax take being paid by the top 10%?
    They give their 3 ounces of flesh and then some whilst investing to create jobs and wealth for everyone
    OnlyGenuineRainey
    12th Jul 2018
    9:10pm
    No, Raphael, I am not thick. And I don't believe lies. I KNOW where the tax dollars come from. And I know how the rich pillage and plunder and exploit and steal.
    OnlyGenuineRainey
    12th Jul 2018
    9:12pm
    If you live on 15% of your pre-retirement income, Raphael, you must have had a very high pre-retirement income. Therefore, you are not qualified to comment here because you have clearly never lived in the real world.
    Anonymous
    12th Jul 2018
    11:50pm
    I live on very little now
    Gave most of it away

    Am just like every other average retiree
    OnlyGenuineRainey
    13th Jul 2018
    12:57pm
    Raphael has changed his name to 'Anonymous'. Pity he just didn't go away completely.
    GrayComputing
    12th Jul 2018
    3:31pm
    It is time for all of us (that means you) to rant at our MPs and Senators daily to take action for human decency and a huge stress reduction for pensioners

    NO ASSET TEST FOR A PENSION EVER AGAIN!
    A pension is not welfare.

    Most economist say we will save taxpayers money by dropping asset testing because of the massive overheads cost in running Centrelink and the 10,000 conflicting rules.

    Hiring more Centrelink staff will only increase taxpayer’s costs for processing the creeping insane red tape monster system politicians and well paid bureaucrats have created.

    Help scrap it now. Become a hero.

    Even poorer New Zealand has a NO ASSET pension so it is cheaper and user friendly.

    Why worry that few million$ earners get it too. That is peanuts to them, not enough for a good vintage champagne.

    Do retired and retiring people really look forward and want 100++ visits to/from Centrelink and be part of 3 million waiting queues and lost calls?

    Does your MP really like being part of the system that allows this indirect abuse of the elderly?

    This abuse is actually sponsored by our government and forced down to Centrelink and borders on a criminal act.

    Why do MPs normally compassionate persons let this Centrelink abuse happen at taxpayers’ expense?

    Some opposition and independent MPs stand to lose their chance at being part of the needed government changes

    We all need to tell our MP and senators every day that these criminal asset tests for a pension must be dropped now.

    Also contact opposition and independent MPs who can help us to get a fair deal on pensions

    NO ASSET TEST FOR A PENSION EVER AGAIN!
    patti
    12th Jul 2018
    3:56pm
    When I was forced into early retirement by redundancy, my income dropped by 60%. then cared for my terminal ill partner for several years before he died. Hard enough to manage on a carers pension plus his contribution. But on my own I was down to just over half my post retirement income. It costs the same to have a light on, or heat water, or pay the phone bill, mortgage, rates etc whether there is one, two or more in the house. At least if more than one, double contributions means less stress. Age pensions is a struggle, but Unemployment benefits (?) are a joke. Who could live on them? no-one I know
    Cowboy Jim
    12th Jul 2018
    4:07pm
    Comparisons with European countries are difficult somewhat. In my old place the pension contributions are compulsory, a certain percentage amount of your taxable income goes into the fund and your employer pays a bit more into it. Millionaires pay too and they get their pension after 65 as well. Currently the pension is about $A3200 a month for a single person who paid in for all his years. Should a person die before 65 there is nothing for sons/daughters etc. You are encouraged to have superannuation they call 2nd pillar to give you a better retired life.
    In this country super is a tax minimization vehicle to create family wealth as the money pot can be transferred to offspring whereas overseas the money dies with the account holder. Purely meant to help you in your old age not for a pot of money to leave behind. There is also no means test, everyone gets it but millionaires who paid in a high amount during their earning life only get that $A3200. Have a feeling people would not like a super system like that in this country. When Aussies pay in they expect something in return. Maybe that is the reason universal pensions are possible in Europe.
    MD
    13th Jul 2018
    9:41am
    What's that I heard Jim, think someone may've just called "Bingo" !
    Rae
    14th Jul 2018
    10:58am
    Defined benefit pensions work like that too Cowboy. The worker bought units with after tax dollars and handed all the money over for a pension that dies with them unless they nominate a spouse at retirement.

    Only the very well paid or business people who can avoid taxes would complain about this sort of system. $A3600 is a decent amount to aim for and should suit all.

    I'd be totally stoked to get that and then pay todays tax rates on my other incomes.

    After all we didn't get the childcare and other tax cuts workers now receive. I paid taxes at 42% for 38 years and have received nothing much not even the energy supplement. That $900 from Rudd was about the only money I ever received from the Nation's coffers. Not fair at all.

    I'll call "Bingo" because plenty of people out there are crying it every single fortnight or tax return time.
    OnlyGenuineRainey
    14th Jul 2018
    6:28pm
    Lucky you, Rae. I didn't even get the $900 from Rudd.
    Adrianus
    15th Jul 2018
    8:22am
    That's right. There were a few rusted on Labor/Greens supporters who didn't get any stimulation from the cash splashes.
    OnlyGenuineRainey
    15th Jul 2018
    6:01pm
    Nothing to do with ''rusted on Labor/Greens supporters'' Adrianus. It had to do with your source of income. Those with $0 income got $0.
    I was a Liberal supporter at the time. Never again! Not after the bastardry and deception we've seen from this government.
    Rae
    14th Jul 2018
    10:34am
    Didn't the Hockey budget of 2014/15/16 deliberately set out to cut the incomes of this group of retirees? Howard had tried to make changes to ensure the middle wasn't disadvantaged and Abbott deliberately sabotaged it.
    OnlyGenuineRainey
    14th Jul 2018
    6:26pm
    Correct Rae. And now Shorten is threatening to finish the demolition job.
    Adrianus
    15th Jul 2018
    8:26am
    Abbott couldn't understand why those who needed the support most were missing out, so he corrected that while trying not to blowout the welfare budget. Much fairer in my opinion.
    Rae
    15th Jul 2018
    9:49am
    Sorry Adrianus but Abbott was led by the nose around by Credlin who proceeded to eliminate all the experienced public servants who may have advised him better.

    Nobody needing support needed to miss out. They didn't need austerity for those few hundred thousand middle class retirees.

    Government coffers are not like our budgets.

    It was pure ideology against a few retirees who had been unionists. Pure and simple nastiness by a government that should have done better.

    Nothing fair about stealing from savers and breaking decade long arrangements where some had no way of changing anything.

    They broke the no disadvantage rule in that legislation which is unforgivable for ant government even if it's your team.

    Wait until the austerity from the rigged Fair Work Commission collapses jobs in retail and hospitality to see the Welfare budget blow out.

    Yes I know it's supposed to create jobs but only customers can do that not businesses that seem bent on share buybacks, mergers and CEO bonuses.
    OnlyGenuineRainey
    15th Jul 2018
    5:59pm
    Adrianus, you are either totally lacking comprehension or just a Liberal troll. Abbott did NOTHING for ''those who needed support most''. Not one single cent of benefit from the attack on part pensioners went to those with nothing other than the pension. The entire benefit went to people with a few hundred thousand in assets. He stripped struggling retirees with modest savings to hand to retirees with a little less, but still substantial savings - and the genuinely needy got ZILCH. Nothing fair or equitable about it. It was pure bastardry and deception.
    Virginia
    16th Jul 2018
    10:40pm
    Don't forget women
    Lowly paid
    Took time to give birth and look after children.
    Their super never started 30 years ago.
    They are the new aged homeless.


    Join YOURLifeChoices, it’s free

    • Receive our daily enewsletter
    • Enter competitions
    • Comment on articles