Retirement time-bomb bigger than expected

Australia is heading for a “train wreck” unless it acts to address poor savings habits, according to the results of a report prepared by Canberra-based economic forecasting firm,Access Economicson behalf of theAssociation of Superannuation Funds Australia.

TheASFA-Access Economics 2004 Intergenerational Reportreleased today claims Australia’s ageing demographics and rising health costs will cause its citizens’ living standards to fall 27 per cent below what they would otherwise be.

This amounts to the equivalent of a massive $130 billion a year in today’s dollars or $6,500 a year for every Australian.

The report suggests the Federal Government’s Intergenerational Report of 2002 only told part of the story in looking at the cost to the Commonwealth of the growing numbers of aged Australians and the price challenge flowing from that in terms of health care costs rising faster than other prices.

However, ASFA chief executive Philippa Smith says what wasn’t in the Commonwealth’s equation was the impact that will be felt by state government and, most importantly, families.

She says households will bear extra costs because prices will have to rise for some government services such as pharmaceutical benefits, while government spending will have to be cut on other services and payments.

The report claims family budgets are at risk because baby boomer retirements will see the share of adult Australians working or wanting to work, falling from 64 per cent today to 55 per cent, leading to $70 billion less in income from paid work by 2041-42.

Both Access Economics and ASFA say the reports suggests that while the Government’s recent retirement incomes policy initiatives will help, they will not solve the problem.

“Australia needs a bigger nest egg for the coming challenges and boosting retirement savings will improve our economic situation on a broad front for both individuals and the nation,” Smith says.

“We need government action to lift savings now, so we have reserves for the future.”