Why the age pension won’t be enough for today’s workers

Age pension payments are not enough for even a modest retirement, research shows, but Anthony Keane explains why there’s a solution.

Could you retire comfortably on $472 a week?

That’s the maximum amount a single pensioner currently receives in age pension and supplements from Centrelink.

If they’re a member of a couple, their pension and supplement income totals just $356 a week.

You’ve got to admire the frugal Aussie seniors who survive financially on just a pension. Most have paid taxes their entire working life and now have no spare cash.

When I was growing up, every retired person I knew relied solely on the age pension for their income. But that was before the days of expensive electronic gadgets controlling our lives, interstate and international trips becoming normal for many households, and soaring home energy bills.

The current single pension of $472 a week is not enough to fund even a modest lifestyle, let alone a comfortable one, according to the quarterly retirement standard produced by the Association of Superannuation Funds of Australia.

Statistics show half of current retirees rely on the age pension as their sole income source.

ASFA says living solely on a pension means you can’t afford a car, health insurance, home improvements or enough winter heating.

A modest lifestyle costs $536 weekly for a single retiree, ASFA says, while a comfortable lifestyle requires $841 a week and that will pay for good holidays, nice clothes, a car, good internet connection, dining out and top level health cover.

These are household expenses that most workers take for granted, so spare a thought for older pensioners who don’t have that option.

The pension alone is nowhere near enough to give today’s workers a retirement that satisfies them financially.

Fortunately, most new retirees are in a much better financial position, thanks to something that started almost 30 years ago.

Compulsory superannuation.

Super has often been criticised as feeding billions of dollars of fees into funds and unions, but it remains one of Australia’s greatest financial success stories.

We collectively have $2.9 trillion sitting in our superannuation nest eggs, which we wouldn’t have had if employer super payments weren’t made compulsory in 1991, and super works wonderfully well when combined with the age pension.

Many retirees receive a full pension and top up their income with money from their superannuation.

The median super balances for 55-to-64 year olds are $183,000 for men and $119,000 for women, based on Bureau of Statistics data from 2018, and won’t produce a self-funded retirement. But they will add at least $100 a week to a pensioner’s income for at least two decades of retirement.

People aged in their 20s, 30s and 40s who are earning average wages today will have bigger super nest eggs in the future thanks to decades of compound interest on their savings, but a truly rich retirement requires extra effort.

There’s no worries about the age pension being scrapped at some point in the future. The government’s recent Retirement Income Review found our system is sustainable, and says the pension will not drain more resources in future decades because superannuation balances will continue to grow.

The pension alone won’t be enough to keep most Aussies happy in their future retirements. Lucky for us it doesn’t have to.

@keanemoney