Why our retirement income system is plodding

We’re delaying major life events, and our retirement income system hasn’t kept pace.

Why our retirement income system is plodding

We're delaying major life events, and our retirement income system hasn't caught up

We’re having children seven years later, getting married is eight years later, buying homes nine years later, and increasingly retiring without them. Shutterstock Rafal Chomik, UNSW

Asked to conduct an independent review of Australia’s retirement income system, the panel appointed by Treasurer Josh Frydenberg has reported that it was all tied up with the family home.

At every age range, Australians have more money saved through home ownership than they do through superannuation or anything else, much more:

Retirement Income Review consultation paper, November 22, 2019

The report is a consultation paper. The panel wants submissions by February 3.

It raises questions about how retirees without mortgage-free homes cope. The proportion is growing.

In part that’s because prices have skyrocketed. Over the past 20 years home prices have grown at about twice the pace of income.


Read more: Fall in ageing Australians' home-ownership rates looms as seismic shock for housing policy


That is in part because of the growth in migration. About 3.7 million migrants have settled in Australia in the past two decades creating new demand for housing.

It is also because of the growth in credit, much of which went to Australians who already had homes rather than those who didn’t yet have them.

And it is also because housing supply has been slow to respond.

But the complex dynamics of high house prices don’t tell the full story.

A wide-ranging review of home ownership just published by the ARC Centre of Excellence in Population Ageing Research finds something else at play.

It’s the expansion of our lives.

Living longer, waiting longer

The typical age of a first home buyer began climbing at the start of the 1980s, after dipping in the 1960s and 1970s as home ownership became widespread.

Between 1981 and 2016 the typical age increased by nine years from age 24 to age 33 at around the peak of the house price boom.

It was accompanied by a deferral in almost every other important life event:


Median age of major lifetime events 1966 - 2016

Source: CEPAR Research Brief ’Housing in an Ageing Australia: Nest and nest egg?’


In part this might be because the canvas of our lives has grown. The median age at death has grown by 12 years since the 1960s, from age 70 to 82.

Longer lives have meant longer adolescences and later ages at which we finish studying, find work, and start families.

The typical age of getting a first job is two years later than it was 50 years ago; the typical age of finishing education is five years later, the typical age of having a child is seven years later, and the typical age of getting married is eight years later.

At the same time the typical age of leaving the labour force is only four years later: it has climbed from 61 to 64. It’ll probably have to grow further, because mortgages aren’t typically paid off until age 62, 10 years later than in the 1960s.

Delay is the new normal

Australia is not unusual in leaving things til later, even though house prices here have grown more than in most other countries.

There’s something more universal at play. Younger age groups may prefer the flexibility that renting offers. Longer lives mean they have more time to buy their homes. Even the nine-year deferral in home purchase we have had so far should still see today’s young generations enjoying home ownership for longer than their parents.

Of course, many will choose not to buy. An increasing minority of mostly low income Australians look like being locked out of the market forever, and many who own homes will surrender them as a result of relationship breakups or other life events.


Read more: The edges of home ownership are becoming porous. It's no longer a one-way street


Some will regain them. Others will retire with mortgage debt: 36 per cent of homeowners do so now, up from 23 per cent 10 years ago. Many will use super to pay off debt instead of using it to fund retirement.

Our retirement income system is little help

The odd thing about the pension is that the payment is the same for both owners and renters. In fact, over $A6 billion of age pension payments go to people living in houses worth more than a million dollars.

Renters receive rental assistance but it is pegged to the wrong index, so it has grown more slowly than rents.

The oft-quoted statistic, that old-age poverty in Australia is high, is wrong.

But our analysis, which takes account of housing, suggests that old age Australian renters do indeed have some of the worst relative poverty rates in the OECD.


Relative old age poverty rate of renters

Source: CEPAR Research Brief ’Housing in an Ageing Australia: Nest and nest egg?’


Older renters have greater housing affordability stress than both older home owners and younger renters.

About 37 per cent of renters aged 64–74 have both a low income and pay more than a third of it in rent, up from 21 per cent in 1996.

While increases in homelessness among older women appear to be largely due to greater population numbers, their increased use of homelessness services is disproportionate.


Read more: Generation Share: why more older Australians are living in share houses


The population of women aged 55+ increased by about three per cent per year between 2011 and 2016. Their use of homelessness services increased 11 per cent per year.

Even if the typical Australian continues to become a homeowner by retirement, a growing minority will not, and will be treated poorly by our retirement income system.

The government’s review of the retirement income system is an opportunity to redress the balance.The Conversation

Rafal Chomik, Senior Research Fellow, ARC Centre of Excellence in Population Ageing Research (CEPAR), UNSW

This article is republished from The Conversation under a Creative Commons licence. Read the original article.

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    COMMENTS

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    8th Dec 2019
    11:38am
    It is time for the OAP be made available to anyone who wants it and to be paid back from their estate when they die. It is simply unsustainable for people to live in expensive houses and not use the equity in those houses to pay for their retirement.
    Blinky
    8th Dec 2019
    12:27pm
    Nonsense. U work hard n u buy a nice house to live comfortably in your old age, so why sell it?
    Politicians have not one, but more than one hoysr n they can still receive a nice pension x life.
    Older migrants too are entitled to a full pension n they havent even worked n paid taxes in this country.
    Dont pick on retirees who own their home. They paid taxes x 40 or more years n they deserve to live in peace in their old age!!!!
    If u r in retirement age n still dont have your own home, there is something wrong with you.
    Anonymous
    8th Dec 2019
    12:48pm
    Well if you are dead then you simply don't need it any more.
    Anonymous
    8th Dec 2019
    1:22pm
    Nonsense in every way. Burn that LNP playbook, BB, it is doing you no good at all and you will never make headway with such nonsense.
    Anonymous
    8th Dec 2019
    1:30pm
    Well I have been told that it is in the pipeline.
    Anonymous
    8th Dec 2019
    2:15pm
    Thank you for the heads-up.. forewarned is forearmed... and the Canberra Mafia can go to hell..
    Sooty from Marketing
    8th Dec 2019
    2:19pm
    Lets start with politicians on the Parliamentary Contributory Superannuation Scheme paying back their overly generous pensions.

    Agree with you Blinky 10 years residency in Australia and one can qualify for the OAP without ever having to pay taxes, how good is Australia.
    Anonymous
    8th Dec 2019
    2:28pm
    Parliamentary super has n9thing to do with welfare as it is part of their wage package.
    Triss
    8th Dec 2019
    3:13pm
    A corrupt part of their wage packet, BB. Was it the tax payers who decided that politicians would get a lifelong, indexed pension after working only eight years? Was it the taxpayers who decided that politicians would be eligible for multi business class airfares for themselves and their families? Was it the same taxpayers who decided that politicians would become the highest paid government therefore their pensions are equally high.
    marls
    8th Dec 2019
    3:39pm
    Very caring best
    Parliamentary pension has been stolen money from the welfare fund
    The gvt stole it to pay for their age of entitlement
    Hasbeen
    8th Dec 2019
    3:52pm
    Perhaps it is a change of attitude. I had to get my father to go guarantor when I bought my first house just before my 21. We all wanted that house first, then to go have fun. Often they were an old shack, but they were ours. None of my kids would have lived in my first house.

    Two of them however were prepared to pay $600 or $700 a week for a nice rental, & spend most of the rest having fun. They will both need inheritance from me to get into today's market, when they could have done it OK 10 years ago.

    When people make the wrong choice in their young life, they might have to pay for it later, & I see nothing wrong with that.
    ex PS
    8th Dec 2019
    8:02pm
    If you take any notice of VCBB, the best plan is to achieve nothing out ofcthecordinary in life, don't buy a house, don't pay extra into Super and do nothing to improve your own life situation.
    Just rely
    ex PS
    8th Dec 2019
    8:06pm
    on the government for everything, medeochrity is the thing we will all aim for and the less we do the better off we all shall be.
    Let the state do all our thinking for us, just be good little comrades.
    Anonymous
    9th Dec 2019
    2:37pm
    PS I own a very expensive house so I can get the full pension. My super is now in my grandkids houses too. You have to learn the rules and play by the rules.
    Anonymous
    10th Dec 2019
    8:21am
    The problem with your stance, BB - is simple - there is a world of difference between income-bearing assets and non income-bearing assets.

    You state that you live on $20k a year - that is after all found, of course - your $20k is your easy spender... all of your costs are taken out of your income before it even looks like sitting on a desk at the ATO.

    On the other hand, there is no income from owning a home, or a car, or a boat, or a campervan etc, etc... there are only costs ongoing, and unless those were treated as assets prior to retirement and deductions allowed - they cannot be treated as assets after.

    Everything you say clearly points to the rules needing to be changed... thanks for your help.
    Farside
    10th Dec 2019
    11:27pm
    Hasbeen is nailed it ... "When people make the wrong choice in their young life, they might have to pay for it later, & I see nothing wrong with that."
    Farside
    10th Dec 2019
    11:30pm
    Really Bear??? If you are eligible for the Victorian battery rebate then your postcode won't have very expensive homes but you are right to max out the property so you can keep a pension and manage your investments so you hit that sweet spot.
    fairplay
    8th Dec 2019
    12:42pm
    In some ways agree with VCBB ,although i am sure those who live in a million dollar house would not.I suppose it depends in which part of Australia you live ( realestate in Sydney/Melbourne more expensive than say Hobart and Adelaide.)What i find difficult to understand (or should i say hard to swallow) is comparing the couple who own a house worth a million dollars and have say 300K in an allocated pension are eligible for the full age pension,however a couple who have a million dollars in an allocated pension and live in a 300K house are ineligible for any pension.
    It would be unfair to expect a couple living in Sydney to sell up and move to cheaper accom elsewhere in Australia,but equally the couple living in the 300K are disadvantaged financially in the long term. Both have the same amount of assets yet the couple with the expensive house not only get a full pension for life but will leave a much greater inheritance when they pass.It does give some validity to the comment of VCBB.just not sure if any Govt. would commit political suicide.Perhaps there should be a class action on behalf of ALL Australians to argue a case for those who are in the position of having the same assets and should therefore be eligible for the age pension, considering they have too paid taxes all their working lives.
    Anonymous
    8th Dec 2019
    12:51pm
    I agree as you can have a house worth many millions and get the full OAP. If you have millions in any other asset you get nothing. It us simply not fair that one gets an income from the government and the 9ther one doesn't. Only way to make it fair is for it to be oaid back when you die.
    Triss
    8th Dec 2019
    3:23pm
    No, that would not be fair, BB. To penalise one section of pensioners and not the rest of pensioners is wrong. The majority of people on a pension, whether age, public servants, etc. are accessing a certain amount of taxpayers’ money. It doesn’t matter how it’s worded, age, salary package, military, every person on a pension must be treated the same.
    Eddy
    8th Dec 2019
    4:18pm
    I hesitate to say it but I believe VCBB has a point, as illustrated by fairplay. Lets not dismiss it out of hand. I believe that ones retirement should be funded by the assets one accumulates during their working life. The OAP should be no more than a backstop for those who cannot/will-not accumulate adequate assets, no matter the reason. To make the OAP repayable on death is one way of assuring those who are fortunate enough to have valuable assets pay their own way, not rely on the taxpayer OAP so they can pass those assets onto the beneficiaries of their estate. We currently have the situation where taxpayer funds are being paid as pension to subsidize younger persons enjoying a financial legacy. Something has to change and VCBB's suggestion is one way. Of course there would have to be provisions to protect items of significant sentimental value, such as wedding/engagement rings etc. If estate beneficiaries want to retain other items, such as the family home etc, then is it too much to ask that they recompense the taxpayers for the money paid for the deceased's welfare. This is no different to having young people pay HECS for higher education. Please discuss rationally.
    ex PS
    8th Dec 2019
    8:10pm
    Yes let's destroy all innitiative, why try to better ourselves, just let others do the lifting for us.
    We have good examples with a government that wants every other nation to tackle climate change before they make an effort.
    We are becoming a nation of leaners.
    Chris B T
    9th Dec 2019
    2:40pm
    Fairplay
    The other Difference in owning the $1 mill and $300 k property is the difference in Rates, Insurance etc.
    Owning expensive Properties generally have greater Expenses no matter where you live.
    The other major omission is there is still another 20 years before the 1992 compulsory super contribution, has had the full effect for a 17 year old at that time.
    Some were lucky in the work place, most weren't so an expensive home now is it.
    The older you go the less likely of super at all.
    This conversation is 20 years to early.
    Anonymous
    10th Dec 2019
    8:22am
    As I said above, fairplay - no comparison between income-bearing assets and non income-bearing assets.. the latter cannot be included in anything.
    Farside
    10th Dec 2019
    11:32pm
    what a refreshing change to see a thread with so many sensible comments.

    8th Dec 2019
    1:24pm
    Reasons the retirement packaging system is lagging? Blatant ineptitude, selfishness and greed, theft by governments of social service money, self-enrichment by funds managers, and an absolute lack of will by governments and funds to undo their own well-feathered nests..
    Anonymous
    8th Dec 2019
    1:29pm
    Those on welfare have never had it so good as they do today. Self funded retirees however are struggling if they have less than $2 million.
    Anonymous
    8th Dec 2019
    1:29pm
    Universal pension and after that taxation on all income, free rides from organisations, fringe benefits, all accompanied by a full overhaul of tax rules that permit so many loop-holes.

    Placement of all retirement/social security funding into a fund not controlled by government or business interests, and its management by an elected body who do not receive massive remuneration etc, and thus do not develop conflict of interest, and who do not have permission to invest personally in any move of the fund (other than the general funding from super/retirement funds held). In this fund all will be treated according to the same rules, same limits on retirement account size, and may add to their own fund without concession - i.e. savings.
    Anonymous
    8th Dec 2019
    1:34pm
    We already have that with SMSFs which are now hold more money than either industry or retail funds. That is why if Labor takes it franking credit policy to the next election ut will lose becuase their policy is so unfair to SMSFs.
    Anonymous
    8th Dec 2019
    2:17pm
    Then why are they self-funded? Choice-mobile - you made your bed etc.. and gloated for so long about how well you were doing.. now the chickens are coming home to roost..

    With the global economy raping national budgets, a collapse was inevitable at some time.. and that includes tax havens so much in vogue with the 'self-fundeds'...

    Pat yourselves on the back for a decision made off your own bat...
    Anonymous
    8th Dec 2019
    2:25pm
    You don't need tax havens foe SMSFs at all.
    ex PS
    8th Dec 2019
    10:09pm
    If you are struggling on any thing over 1 million dollars, you just don't know how to manage money.
    That's your own fault not anyone elses.
    Anonymous
    9th Dec 2019
    1:35am
    Ah - so you admit that the loop-holes available to SMSFs are sufficient that they do not need to put their income into a tax haven? So we now have a tax haven for SFSRs right here and now?

    No need to hide your income - it's all done for you courtesy of AusGov Inc (but only if you are a certain 'class' of person)!

    WELL.. who'd 've thunk it?

    Do you ever seriously think about what you are saying and what it imports in the real world?
    Anonymous
    9th Dec 2019
    3:23pm
    Super is a tax advantaged investment with strings attached. Nothing more.
    Anonymous
    10th Dec 2019
    8:23am
    .. and franked credits are marketed as 'tax effective' - how do you explain that?
    Anonymous
    10th Dec 2019
    12:08pm
    Franked income is just tax paid income where the franking is a with holding tax like PAYE and PAYG. Pay too much with holding tax and you get a refund. Franked income is no more tax effective than earning net wages which are also franked.
    floss
    8th Dec 2019
    1:30pm
    Simple and it will not cost much,let population increase at a natural pace not by immigration.
    Eddy
    8th Dec 2019
    4:22pm
    Sorry Floss. but I was bought up with the mantra "Populate or Perish", I think it is as valid today as it was in the 1950s.
    Anonymous
    9th Dec 2019
    1:23am
    Could be 'population AND perish' these days - the country is giving us a warning...
    Farside
    10th Dec 2019
    11:35pm
    with an ageing population population increase by natural growth alone is not sustainable and immigration is a necessity to maintain/improve living standards.
    marls
    8th Dec 2019
    3:36pm
    Verycaringbear

    So to solve the problem of the old age pension being unsustainable it would be better for young people blow all their money live extravagant travel and live line there’s no tomorrow and never work then when you get to old age pension you will have easy access yes I know a few of those been on benefits all their life never paid one cent in tax what a luxurious life meanwhile all the ppl that paid taxes and worked all their life are expected to pay back their aged pension google who stole the workers compulsory pension fund by Australian morning mail
    Eddy
    8th Dec 2019
    4:44pm
    Marls, a one sentence paragraph is difficult to analyse, nevertheless I think I get your drift. We have always had people like you describe, workshy, but I think you mistake many people as workshy who are, for various reasons, unable to work. No need to besmirch the new generation, they are not that much different to the way we were. All the young people over 16 I know, ie my grandchildren and their friends, my friends grandkids and my neighbors kids, are just as ambitious to get a good education, a good job, marry, buy a house and raise a family as was my generation.
    ex PS
    8th Dec 2019
    8:13pm
    marles, everybody in this country pays tax, think about it. Ever heard of GST?
    Anonymous
    9th Dec 2019
    1:25am
    GST isn't the only tax - every purchase holds some tax... government never goes short of your dollar...
    KSS
    8th Dec 2019
    5:23pm
    When are you going to leave the politics of envy alone? People have always made choices and lived with the consequences of those choices and today is no different.

    People enter the workforce later because they study longer. Kids no longer leave school at 14 and go into entry level jobs. They go to university and don't leave until they are around 24. Women now outnumber men at university. Women are better educated than ever and want a career, not be a stay at home wife with a couple of kids. Kids now have one or two degrees and are no longer happy to start in entry level jobs. They travel, they drive cars, they buy stuff and more stuff and have far higher expectations than generations before. Few would be prepared to start off in a one bedroom shack in a far flung suburb because that is what they can afford and take years to work up to the nice house in a desirable suburb. They want to start where their parents finished.
    Almost everyone has challenges in life which must be overcome. A divorce, redundancy, etc are commonplace these days and don't define the person. Yes life can be tough but it was always tough. The difference is resilience, we have it. Kids today don't.
    If you own your home you have worked long and hard for it. However with super, I think you should be expected to live on that to support retirement. Not save it for the kids inheritance. They will get the house, they don't need you scrimping and saving to. Leave them a few dollars more.
    ex PS
    8th Dec 2019
    8:16pm
    Not going to scrimp on anything to leave money to the kids, but what ever I have left should go to them, not the government.
    Anonymous
    9th Dec 2019
    1:30am
    Trouble is, KSS, having one or two degrees is increasingly meaningless in a job arena that has increasingly lower limit on numbers.

    Both my children did not want to do a degree - it's a quirk in my family that we are genius level but are not interested in 'academia' - instead we look for results ... one is a tradie and the other is a jet-setter in the film industry...

    Ability still has its merits, as opposed to being an 'idiot savant' with education and no ability...

    All the education in the world will not make a sow's ear a silk purse...
    Anonymous
    9th Dec 2019
    11:50pm
    Yes, KSS, this article is yet another one in a long line, promoting the politics of envy,
    The article says wrongly "The odd thing about the pension is that the payment is the same for both owners and renters.", then goes on to contradict it by saying "Renters receive rental assistance..." i.e. extra money, then assumes that justifies action to change the so-called "imbalance", once again ignoring the large, ongoing costs for homeowners which renters don't have.

    Yes, TREBOR, your comment elsewhere about Universal Age Pension remains the only sensible option.

    Fortunately (as this has been lacking in YLC so far), this article gives the Link to the Treasury page where you can read the status of the Review (Consultation paper), and also information how to make Submissions to the Review by email / latter by 3rd Feb 2020.
    All MUST write to this Review to be heard - blame yourselves if you don't write and the Review results are less than sensible - quite possible!
    Anonymous
    10th Dec 2019
    8:27am
    The 'politics of envy' is most apparent among those who feel that a pension earned is somehow unearned.... re-read the rules and get with the program.

    Then these same persons somehow feel that only the 'betters' should have any entitlement™ to an inheritance passed down to their family.... if you have investments and shares you are entitled™ - if you do not have that kind of income, apparently you are not.

    Pure class war™ ....

    As for this review.. I'd suggest they watch their step... a pack of lifetime parasites sitting in judgement on the meal size of pensioners is not a good look...
    Rosret
    9th Dec 2019
    7:44am
    The one very notable graph is the one where the median age of becoming disabled is 76 in 1970 and 76 in 2011. We can be kept alive longer thanks to medical science however we are all still aging at exactly the same rate.
    So if the wheels of power think the younger generation can work on until they are 70 then they are sadly mistaken. However the people in power will be long gone when this situation eventuates.
    Anonymous
    9th Dec 2019
    10:08am
    They will have ridden off into the sunset on a golden chariot...

    Political/public office in this nation must be reduced to service to the people - not the other way around.
    Anonymous
    10th Dec 2019
    12:10pm
    So if you work until you are 70 you have 6 years left to enjoy your retirement. If you want to retire earlier than you should fund it yourself instead of the taxpayer.


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