Will more people be reliant on the Age Pension in the future?

In the 2015 Intergenerational Report, brought down by then Coalition treasurer Joe Hockey, it was stated that in 2013-14, about 42 per cent of people of pensionable age were receiving a full pension. Under an envisioned scenario, the proportion of people of pensionable age receiving the full age pension was projected to fall to around 40 per cent by 2054-55. The main reason given was that as Australia’s superannuation system matured, more workers would retire with larger superannuation balances than is currently the case.
The report admitted that the necessary changes were not occurring fast enough and from 1 January 2017, the assets test was amended for age pension recipients reducing the upper asset test threshold, removing 300,000 individuals from receiving a pension.
In 2013-14 average superannuation balances held by Australian men aged 60-64 years was $295,000 ($138,000 for women). Now a single pension of $22,729 per annum (at 27 March 2017) implies an equivalent capital investment of around $757,640 at an interest rate of 3% which is about as good as you will get with a bank account. Current average superannuation balances of those close to retirement will need topping up with the aged pension.
In contrast to this rosy view of retirement incomes, a report in March 2017 by Saul Eslake on behalf of the Australian Institute of Superannuation Trustees, paints a gloomier picture. Debunking the myth that Australian retirees would have low housing costs, as most would own their homes outright or be set up in low-rental government housing, Eslake focuses on three trends that make this assumption dubious at best. Declining home ownership by young workers, declining rates of outright ownership with many people with mortgages when they retire, and an increasing proportion of older people living in private rental accommodation.
If pensions rise less quickly than the cost of living and especially rental costs, more older Australian will increasingly be reliant on the age pension in retirement. With many retirees holding mortgages, superannuation balances will be used initially to pay down mortgage debt, often leaving them with insufficient to live on without an aged pension supplement. Sobering stuff.

Leave a Reply

Your email address will not be published. Required fields are marked *