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The conventional wisdom is that Australians don’t save enough for retirement. But Grattan Institute’s recent report, Money in Retirement, shows this belief is mistaken.
Retirees are less likely than working-age Australians to suffer financial stress such as not being able to pay a bill on time, and more likely to be able to afford optional extras such as annual holidays. Grattan Institute updated modelling shows that, even after allowing for inflation, most workers today can expect a retirement income of at least 89 per cent of their pre-retirement income – well above the 70 per cent benchmark endorsed by the OECD, and more than enough to maintain pre-retirement living standards.And many low-income Australians will get a pay rise when they retire, through a combination of the Age Pension and their compulsory superannuation savings. Because most Australians will be comfortable in retirement, there is no need to boost retirement incomes across the board. The legislated plan to increase compulsory superannuation contributions from 9.5 per cent to 12 per cent should be scrapped, saving the Budget about $2 billion a year. And superannuation tax breaks and age-based tax breaks should be reduced, to ensure the retirement incomes system does not become an excessive burden on future budgets, and endanger funding for aged care and health. But the retirement incomes system is not working for some low-income Australians, especially those who rent. Therefore the priority for adequacy should be to boost Commonwealth Rent Assistance by 40 per cent.
Brendan Coates is the Australian Perspectives Fellow at the Grattan Institute. His research focuses on tax reform, economic and budget policy, retirement incomes and superannuation, housing, transport infrastructure and cities. Before Grattan, Brendan worked as a macro-financial economist with the World Bank in Indonesia and Latin America, and prior to that, he undertook a number of roles with the Australian Treasury in areas such as tax-transfer system reform, financial and commodities markets analysis and macro-economic forecasting, including as part of the Treasury’s China Policy Unit. Brendan holds a Masters of International Development Economics from the Australian National University and Bachelors of Commerce and Arts from the University of Melbourne.
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