If given the opportunity to retire with a million dollar superannuation balance you would probably be more than happy, but all too soon that simply won’t be enough.
It is anticipated that those aged 30 currently earning a salary of $60,000 will accrue a super balance of $1.1 million by 2024 but, staggeringly, this won’t be enough to afford a comfortable retirement. Men will need to have a balance of $1.58 million and women $1.76 million to live the life to which they are accustomed. As the Association of Superannuation Funds of Australia (ASFA) suggests that $860,000 is currently the magic figure which enables retirees to live a comfortable life, including eating out and holidays, the amount required in 35 years time will need to be double.
According to its sixth biennial report into superannuation, top accounting firm Deloitte warns that the Coalition Government’s decision to defer for two years the increase in the Superannuation Guarantee, from nine to 12 per cent, will cost retirees about $80 billion in lost superannuation income. It also suggests that it is necessary to increase the cap of $25,000 on concessional superannuation contributions to allow workers to top up their super balance and fund their retirement.
For those planning to retire in 2023, just 15 years away, over half are expected to live until 86 years of age. That’s 19 years after the retirement age of 67, as it will be by then. Deloitte partner Wayne Walker says the superannuation system needs an overhaul, or people will be working to 68 or 70 just to make ends meet. “The concern is that current policy settings, including caps and drawdowns, and the Superannuation Guarantee (9 per cent to 12 per cent) increase, will not deliver the lifestyle that the majority of those retiring in the next 20 years are seeking,” he said.
“The reality is that many Australians will need to work longer and, where possible, contribute more.”
It is also necessary to encourage people to make more provisions for their retirement funding, as more self-funded retirees will be necessary in the very near future. With the current ration of four workers for every retiree predicted to drop to three-to-one, the burden on the public purse will need to be relieved with more funding their own retirement.
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Despite the Super System Review of 2010, little has actually been done to improve the outlook for future retirees in Australia and it won’t get better any time soon.
Superannuation is a great idea, just one which Australia hasn’t quite managed to get right. Compulsory employer contributions and favourable tax concessions should be enough to help workers fund at least part of their own retirement, but too much confusion surrounds the current system.
When in power, the Labor Government used the superannuation system to help balance the books when budgets were tight. Lowering concessional contributions from $100,000 to $50,000 for those over 50 years of age really adversely affected the retirement savings of those who had not had the benefit of compulsory employer super contributions for all their working lives. And the subsequent tinkering with the concession cap which now sees it sit at $25,000 for those under 59 and $35,000 for those over 60 is just too confusing.
Increasing the superannuation employer guarantee, coupled with the gradual increase in Age Pension eligibility age to 67 was a step in the right direction to help people save more. However, the Coalition Government’s decision to suspend the guarantee increase for two years, as well as plans to remove the low income super contribution which only started last year, simply hurts those who need it most.
Report after report is released which models the impact of lower contributions, less retirement income and more people relying on government benefits, but it all seems to fall on deaf ears. While such reports look at the overall picture and deal in billions and trillions of dollars, they don’t touch the reality which faces retirees today. For those who did not have the chance to save enough through superannuation, living on an Age Pension of $827.10 per fortnight is the reality. And if we don’t address the situation urgently, an Age Pension may be a thing of the past, something this country simply won’t be able to afford.
Should people be able to pay more into superannuation to help with retirement funding? Should the government prioritise getting the superannuation system right? Would increased concessional contributions help your retirement nest egg?