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Australians face a shortfall in retirement savings, and may have to accept lower living standards or bump up their savings though contributions.
According to ING’s superannuation strategy manager, Graeme Colley, 2010 will be an interesting year in light of the Henry Review on taxation and the Cooper Review.
“With the recent [Intergenerational] report on retirement, it was interesting to see the two major things that the government came out with were the costs of aged care and how we were going to fund retirement,” said Colley.
“Whether this fits with what the Henry Review comes out with will be interesting to see,” he said.
He added that superannuation savings into the future will probably come from voluntary savings rather than through subsides.
“We’ve seen the Government cut that back last year, saying that’s still enough to provide for a reasonable retirement income — but that amount is always debatable.”
Colley referred to research from the University of New South Wales, which stated that an adequate retirement income is 20 times pre-retirement income.
Illustrating the point, Colley said a person aged 40, who earns $60,000 per annum, has $250,000 in super and who wants to retire at 65, would need (at today’s value) $1.2 million at retirement if they were to go by the University’s figures.
“Indexed to 65 in dollar terms, people would need about $2 million for retirement.”
He said the current balance plus the superannuation guarantee and earnings at 65 will be about $807,000 at today’s value, a shortfall of at least $400,000.
“If the Government doesn’t take up increased funding through increased taxes, it is going to lead to reduced living standards in retirement — or people will need to bump up their superannuation contributions,” he said.
He added, however, that salary sacrifice is not as attractive now as it was 12 months ago when people could sacrifice higher amounts.
