Article - Business Review Weekly, National
Golden Years Tarnished, Jonathan Philpot quoted
Projected retirement incomes have fallen to their lowest level since 2008, prompting calls for additional voluntary contributions. Report: Michael Bailey The retirement income adequacy of working Australians has dropped to its lowest level since the global financial crisis, falling almost 2 percentage points over the first six months of 2012 to just 69.4 per cent of pre-retirement incomes.
The AMP Retirement Adequacy Index crunches data based on the situations of 280,000 corporate superannuation customers, comparing their super account balances and stated non-super wealth with their stage of working life to come up with an aggregate level of retirement income adequacy.
The data factors in the gradual increase in the superannuation guarantee from 9 per cent to 12 per cent by 2020.
Superannuation was a major driver of the reduced adequacy, with the average worker’s total superannuation contributions falling to the lowest level since the index began in 2006 at 12.3 per cent of salary compared with 12.6 per cent at the end of 2006 mainly due to a fall in voluntary contribution rates.
Soberingly, the average projected superannuation account balance at retirement fell to $492,000, with the lower contribution rates enough to eliminate the projected gains from the introduction of the 12 per cent compulsory contribution rate.
AMP estimates the average retirement income for its customers now at just under $49,000 a year, ranging from $63,840 for those aged 20 to 24 today, $35,814 for those 50 to 54, down to $32,627 for those aged 65 to 69 and unfortunate enough to have spent most of their working lives without compulsory super.
The average annual income of $48,797 comprises $24,930 of superannuation income, $14,950 from the aged pension and $11,152 from "other investments" (a mix of shares, cash, managed funds and investment property which AMP has based upon Treasury estimates of assets held by Australians).
These amounts are nowhere near enough for a "comfortable retirement", which measures such as the Westpac Retirement Standard typically say require an annual income around $55,000.
Workers used to be able to play catchup as they approached retirement but the halving of caps on concessionally taxed contributions makes this impossible, the wealth management partner at HLB Mann Judd, Jonathan Philpot, says.
"For those aged over 50 ... it is simply not possible to lift the super balance to a level that will provide for a comfortable retirement," he says. "The only two alternatives are to work until they are in their 70s, or save more." The saving option is constrained, even if the Gillard government sticks by its promise to increase the concessional super limit back up to $50,00 by July 1, 2014, Philpot says. (The concessional cap was $100,000 under the Howard government.) Those under 40 need to prioritise superannuation as highly as mortgage repayments and building personal wealth, Philpot advises.
Article published by Michael Bailey in Business Review Weekly, National on 4 October 2012.