Retirement living standards aren’t so bad. You don’t need much super
The latest scary figure, produced by the Association of Superannuation Funds, is $58,784 per year. That’s how much it says a 65-year-old couple needs to live on in order to enjoy a “comfortable” retirement.
At the risk of stating the obvious, after tax and rent or mortgage payments most working Australians couldn’t afford such comfort.
It’s absurdly high. The fine print shows such a couple would spend $40 a week on alcohol, $80 a week on dining out, almost $200 a week on food and groceries, $136 a month on the phone and internet, $4000 a year on holidays within Australia, and $14,000 every five years on a holiday abroad.
Plus this: the best part of $250 a month on new clothes and shoes, $80 a month on hairdressing, $54 a month on pest control and/or an alarm service, and $350 a month on private health insurance.
At the risk of stating the obvious, after tax and rent or mortgage payments most working Australians couldn’t afford such comfort. How did such a figure come to be defined as the gold standard used to justify steady increases in compulsory super contributions and to attack plans to tax them properly?
Part of the answer is that the super industry really doesn’t care about the living standards of Australians who are working or about the extra tax they have to pay because super funds aren’t. Its chief concern is the $2 trillion in funds it has amassed to date, and the tens of billions of dollars of it that stick to its fingers each year in management fees.
Its so-called “comfortable” retirement standard was originally called “comfortably affluent but sustainable”. That’s right, the word “affluent” got edited out along the way. The University of NSW team that built it never intended it to apply to the bulk of retirees. For them they created a second standard, “one which affords full opportunity to participate in contemporary Australian society and the basic options it offers”. They labelled it “modest but adequate“.
The word “adequate” has also disappeared along the way, leaving the false impression that what’s affluent is normal and that anything else isn’t adequate.
It’s needlessly scaring us. A new survey by State Street Global Advisors finds that before retirement most Australians believe they won’t have enough to live on, but that after retirement most are happy: two-thirds say their standard of living is no worse and a significant minority say it is better.
The truth is that living costs plummet on retirement. Most retirees no longer face a mortgage, a saving of 30 per cent. Most no longer pay tax, no longer have children living at home, and no longer habitually save up to 10 per cent of each pay packet. They also no longer incur the substantial costs of heading out of home and going to work: petrol, parking, work clothes and the temptations of the office cafeteria. And they have more time to shop and cook, meaning they get better value and pay less for food. So comfortable are retirees spending far less than the industry says they need to, that most actually save.
In his earlier incarnation as social services minister Scott Morrison revealed that in their first five years in retirement 57 per cent of pensioners either build up their savings or keep them steady.
In their last five years 67 per cent do so. A Productivity Commission survey released last week finds that only 5 per cent of retirees stop saving when their income drops on retirement. But outrageously inflating the cost of living for retirees is only the first of the industry’s tricks. The second is to imply that all of it has to come from super.
The astonishing truth, outlined by Morrison in a speech as Treasurer last month, is that super accounts for only 15 per cent of the assets of Australians over the age of 65, and only 20 per cent of their income.
As the Grattan Institute put it in a recent report: superannuation is the least important part of the retirement incomes system. Retirees have much more invested in real estate than super, and “at all ages, incomes and wealth” more invested in other financial instruments than in superannuation.
“It is unreasonable to expect superannuation savings alone to fund a comfortable living standard in retirement,” the institute says. It follows that it is unreasonable to believe that the super system needs to grow or stay as it is in order to provide decent retirements. Labor is blind to evidence when it comes to superannuation.
In thrall to the legend of Paul Keating and the myths propagated by the industry he helped create, it wants to lift compulsory contributions from 9.5 per cent of salaries to 12 per cent. Morrison is more clear-eyed.
Some retirees are genuinely poor. They are the ones paying rent. The Productivity Commission says they typically have to dole out $240 a week and are vulnerable to eviction. Shamefully, when Kevin Rudd lifted the age pension in 2009 he all but ignored the finding from his pension review that rent assistance was far too low. It remains unindexed at $120 a fortnight.
There may well be other Australians for whom retirement is uncomfortable, notwithstanding the pension of $20,498 for singles and $30,903 for couples. But for most it’s OK, no worse than working. There’s no need to hand a $2 trillion industry tax concessions in order to help them.
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