The Intergenerational Report has found that Australia’s compulsory super system is lessening the fiscal burden of an ageing population while lifting retirement incomes.
The Intergenerational Report (IGR) shows that because of super Australia will spend proportionally less on the aged pension in 40 years – despite a doubling of over 65s by 2063 and a trebling of those aged over-85.
The Intergenerational Report shows the aged pension will decline from 2.3% of GDP to 2 per cent by 2062-63, even as other cost associated with an ageing population soar.
Super is already easing the cost burden of the pension. APRA’s superannuation bulletin has confirmed that super funds already pay out more than double in benefits than the Age Pension.
And about half of the nation’s newly retired (those aged between 65-69) have enough super savings and private savings so that they do not qualify for the pension.
Australia’s super system is rated as one of the best in the world, and when it comes to reducing age pension costs our system stands alone.
The IGR shows by 2035, among 38 OECD countries Australia will have the lowest public spending on pension by GDP.
By the 2060s, we will be spending 80 per cent less on the age pension by share of GDP than the average OECD nation - and half the rate of the next nearest country. The IGR also projects that the proportion of retirees on the pension will be 15 per cent lower than it is now.
Protecting the system with a legislated Objective of Super that puts preservation at its core is the key to ensuring the super system can deliver on the IGR’s future projections.
Modelling by Rice Warner, commissioned by Industry Super Australia, found that abolishing super in favour of a beefed-up pension would blow a $100 billion hole in the Budget by 2058.
With the legislated rise of the super guarantee to 12% and the system maturing it is expected that individual balances will continue to grow, now the average Australian retires with about $360,000 – but today’s average 30-year-old is expected to retire with $500,000 (in inflation adjusted dollars).
With more Australians reaching retirement age and balances growing funds recognise the need to create smooth pathways to retirement. The sector welcomes a consultation on retirement spending and a significant amount of thinking is underway on how super funds and the system’s policy settings can best cater to needs of the growing retiree cohort.
Comments attributable to Industry Super Australia Deputy Chief Executive Matt Linden:
“Australia’s world class super system already pays out double to retirees than the age pension and will lessen the cost of retirement even as the population ages.”
“While super is still maturing, it is beginning to live up to its promise of delivering a better standing of living in retirement and removing the burden of paying for it by taxing our children and grandchildren.”
“With growing balances and more Australians reaching retirement age, there is a focus from the industry to ensure super continues working for members once they themselves stop working.”
James Dowling: 0429 437 851, firstname.lastname@example.org