Conflicting data alert: Is the super system too generous or not enough?

Retirement is far from time on the golf course and holidays on cruise ships, at least according to new research that revealed an increasing number of retired Australians were struggling financially to keep their heads above water. As a result, many have been forced back into the workforce – often just to keep their lights on.

A survey commissioned by Industry Super Australia (ISA) looked at the lifestyle and spending habits of more than 700 industry superannuation fund-member retirees and pre-retirees aged 47 and over, and found that nearly 40 per cent were living on a tight budget with only enough money for essentials.

The situation was so dire that more than a quarter of recently retired Aussies went back to work to make ends meet.

The percentage of retirees and near-retirees struggling financially was significantly higher than in a similar survey in 2010 that found only 30 per cent were in the same boat. In the most recent report, a fifth of retirees said their ‘golden years’ were not as comfortable as they expected them to be.

ISA Chief Executive Bernie Dean said that workers were in desperate need of bigger retirement super balances – a situation he said could only be alleviated for future retirees by the government delivering the promised increases in the super guarantee.

“Only by lifting the super rate will workers be able to have the retirement of their choosing and the best chance to control when they end their working life,” Dean said. “With an ageing population and many retirees doing it tough, the only way for the government to defuse this ticking time bomb is to lift the super rate.”

According to the Australian Taxation Office (ATO), it is legislated that from 2021 the so-called super guarantee (the percentage of an employee’s wage that is contributed by their employer to a super fund) should incrementally increase of 0.5 per cent every financial year to reach 12 per cent by July 2025. The super guarantee payment that workers receive on top of their ordinary wages has been frozen at 9.5 per cent since July 2014, which ISA says has cost the average Australian worker $100,000 in savings.

A super guarantee stoush

However, Grattan Institute, a prominent Australian think tank, recently disagreed with this stance. The institute said this week that lifting the super guarantee would create a wider divide between the country’s rich and poor by ensuring bigger inheritances for rich kids, while axing the proposal would save the federal budget up to $4 billion a year.

“It [increasing the Super Guarantee] would do little to boost the retirement incomes of many low and middle-income earners,” the Grattan Institute’s submission to the government’s ongoing super review read. “It would lead to lower pensions for both current and future retirees by suppressing the value of the wage-benchmarked Age Pension.

“Pushing for retirement savings when they are not needed is simply a recipe for larger bequests, leading to widening wealth inequality over time as those unused savings are passed on to future generations.”

Age Pensioners below the poverty line

The disagreement between two powerful bodies such as ISA and the Grattan Institute came after yet more research, this time released by the Australian Council of Social Service and UNSW Sydney, showed the Age Pension left full-pension recipients below the official poverty line by $10 a week.

Ian Yates, chief executive of COTA, the peak body representing older Australians, said these findings were particularly concerning for older people who have been forced out of the workforce due to their age but weren’t yet old enough to receive the Age Pension, so were stuck on the Newstart unemployment payment.

“More than half of the 680,000 Australians receiving Newstart are older than 45, with one in four older than 55,” he said. “We know that employers target older workers for retrenchment, and one in three have admitted that they actively and illegally refuse to recruit workers over 50.

“At the same time, changing job markets mean many older workers are being pushed out of traditional industries. As a result, older Australians on Newstart are living off a weekly allowance that’s more than $100 a week below the poverty line after years of working and saving for their future, with years to go until they qualify for the Age Pension.”

What can near-retirees do?

ISA emphasised that there were easy ways to ensure every available cent was going into a super account that would benefit workers in retirement.

“Removing multiple accounts, ensuring you are being paid the correct amount of super and putting your super in a good performing fund are important steps to ensuring you are getting the most out of your super investments,” the organisation said.

“From about 55 years on, it’s recommended you develop a super plan that can support you in retirement. How much super you need depends on a number of variables, including the retirement lifestyle you want, how long you’re likely to live for and whether you plan to spend a large sum of money on travel or paying off your mortgage.”