Only 51% Couples in Australia Have Comfortable Level of Retirement Income

August 30, 20168:00 am1835 views

Based on data from the most recent Household, Income and Labour Dynamics in Australia (HILDA) Survey, only 51% couples and 37% of singles in Australia surveyed, are on track to have a comfortable level of retirement income.

These findings are according to the Association of Superannuation Funds of Australia (ASFA) Retirement Standard.

Research by leading global advisory, broking and solutions company Willis Towers Watson and The University of Melbourne has found that while investment markets performed strongly from 2010 to 2014, there haven’t been corresponding improvements in the projected retirement income adequacy for all groups, especially for couples.

A key factor causing the mixed rates of increase is the impact of changes to the Age Pension assets test announced in the 2015 Federal Budget, which will take effect from 1 January, 2017.

Under the changes to the assets test, the taper rate will double from $1.50 to $3.00 per fortnight for each $1,000 of assessable assets above a minimum threshold, meaning that eligibility for partial age pension payments will phase out more rapidly and at lower amounts than previously.

Before allowing for the impact of these changes, projections using the 2014 HILDA data indicated the proportion of couples expected to retire comfortably was 62%, an increase of 9% on the 2010 data. The proportion of singles expected to retire comfortably grew even more significantly from 23% in 2010 to 38% in 2014, an increase of 15%.

Factors contributing to these increases are the relatively strong investment returns experienced during the period resulting in higher than expected superannuation and other assets available to fund retirement incomes; and age pension increases of approximately 4.7% p.a. over the period compared to the 2.6% p.a. increase in the comfortable level of retirement income under the ASFA Retirement Standard.

However, researchers then considered the impact of the change to the assets test applying to age pension payments from 1 January, 2017 onwards. This data indicates there will be a significant negative impact on the proportion of couples expected to achieve a comfortable level of retirement income, with a reduction from 62% to 51%.

See: Majority of Australian HR managers Plan to Maintain Current Staff Levels over Next Six Months

On the other hand, singles are expected to be affected less with a reduction from 38% to 37% of those expected to achieve a comfortable level of retirement income.

The 70% of couples nearest to the mid-range of the projected retirement income distribution will be the most affected by the assets test changes in 2017. Couples on lower retirement incomes than this will still generally receive the full age pension, while the age pension plays only a small part for those couples with the highest levels of retirement income.

John Burnett, senior consultant with Willis Towers Watson in Australia said: “Australians may be feeling more positive about their projected retirement income due to the strong results that investment markets have delivered to superannuation savings and other assets over the period from 2010 to 2014. However, many may not be aware of the changes to the asset test due to take effect in 2017 and the significant impact this will have, particularly for couples.”

“If Australians are to be encouraged to plan for retirement in advance, they need greater certainty on the level and availability of the age pension that will be payable to them once they retire.”

Dr Carsten Murawski from The University of Melbourne said: “While it is encouraging to see some progress, with more singles likely to reach a comfortable level of retirement income in 2016 than previously, there is still more to be done here as reliance on the age pension as the primary source of retirement income remains high.”

The retirement projections allow for compulsory superannuation, voluntary superannuation, the age pension and other retirement savings not held in superannuation. This research was carried out by John Burnett and Nick Wilkinson from Willis Towers Watson’s Retirement team and Professor Kevin Davis, Professor Roger Wilkins and Dr Carsten Murawski from The University of Melbourne. The research projects the retirement income for 11,815 persons aged 25 to 64.

Also read: Over a third of Australian Technology Leaders Plan to Increase Staff Levels over the Next 6 Months

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