The majority of Australians will face an unexpectedly bleak future in retirement if they rely solely on the current superannuation system to generate their retirement income, a report released today by the industry body for certified practicing accountants,CPA Australia, has found.
The report, compiled by the National Centre for Social and Economic Modelling on behalf of CPA Australia, found that the vast majority of Australians will face a debilitating drop in living standards in retirement if they rely only on compulsory employer superannuation contributions.
“Most people tend to think they will enjoy the same lifestyle in retirement as they did before. This report shows that people must ask themselves if they will be able to do that,” chair of the CPA’s Superannuation Centre of Excellence Murray Wyatt says.
Wyatt says the new report, based on research into 12 representative retirement groups, differs from other reports in that it measures the adequacy of superannuation savings against people’s own individual circumstances, including their work patterns, living standards and lifestyle expectations.
The report found that only in the most favourable of circumstances would a majority of Australians enjoy the same standard of living in retirement as they have before retirement if they rely only on the nine per cent compulsory superannuation contributions from their employers.
These circumstance would have to be where an individual retires at age 65 after having worked for 40 years and having achieved a minimum of 5.5 per cent real return on superannuation each year.
“The majority of Australians are not in [this] best-case position. The report acknowledges that Australians are leaving the workforce in significant numbers from the age of 55 rather than working until the age of 65, either voluntarily or through job loss,” Wyatt says.
He says for the majority of middle-income earners who retire at age 55, the current superannuation system would provide a standard of living only slightly higher than that provided by the age pension.
The report, called ‘Superannuation – The Right Balance’, also examined a number of options to improve the current system of retirement income savings. These include increasing employer superannuation contributions to as high as 15 per cent through salary sacrifice, removing the tax on superannuation contributions and fund earnings, and supplementing employer contributions with 3 and 6 per cent employee contributions.
According to the report, each of these options would make a significant difference to the adequacy of an individual’s retirement incomes.
The study also found that a 1 per cent increase in the earnings of a super fund each year would increase the living standards of individuals by up to 10 per cent in retirement.
“The industry and the Government need to work together to raise people’s awareness about superannuation and the need to save for retirement. We need to ensure that we have the policies and systems in place that serve the needs of Australians well into the future, and that requires finding ways to encourage greater savings for retirement,” Wyatt says.
