Written on the 2 December 2010 by Financial Services Council Report
Research released by the Financial Services Council shows that Australia’s retirement savings gap increased by more than $200 billion last year.
In their research report ‘Superannuation Savings Gap at June 2009’, Rice Warner Actuaries measured the shortfall between actual superannuation savings and the amount needed to fund a comfortable lifestyle after retiring from work.
Financial Services Council CEO John Brogden said: “An adequate annual retirement income is defined as 62.5 per cent of a person’s last salary. Our research shows 9 per cent superannuation will fail to provide the population with their expectations of a comfortable retirement.”
The current savings gap of approximately $87,900 per person is based on people aged between 25 and 64 who earn between 50 per cent and 200 per cent of the average wage. While the overall retirement savings gap was higher for men, it is higher for women when the Age Pension is taken out of the equation - the Age Pension forms a higher component of retirement income for women. Lower pre-retirement income levels, longer life expectancies and lower super savings all contribute to a wider savings gap for women.
The research assumed that people would have enough to pay their target benefit up to their life expectancy at retirement. However, the report found that 50 per cent of retirees are expected to exceed their life expectancy and will need to rely on the Age Pension unless they have an alternative form of income or a higher superannuation benefit.
Mr Brogden believes lifting the superannuation guarantee to at least 12 per cent is an important measure in closing the retirement savings gap. “This, combined with the Government’s plan to raise the concessional caps for those nearing retirement and the SG age limit, would provide a 30-year-old on average weekly earnings with an additional $108,000 in their superannuation account on retirement,” he said.
In the May 2010 Federal Budget the Government announced it would permanently extend the current $50,000 concessional cap on super contributions for people aged over 50 with superannuation balances under $500,000, making voluntary contributions more attractive for this age group.
While the research predicts that lifting the superannuation guarantee to 12 per cent could reduce the retirement savings gap by up to 27 per cent, it will not completely eliminate it. “We still expect that voluntary contributions will remain critical if more Australians are to save for an adequate retirement income,” the report states.