POWERED BY MOMENTUM MEDIA
(April-2004) Anticipating the boomer shockwave
A cornerstone of debate during CMSF 2004 was National Centre for Social and Economic Modelling (NATSEM) research detailing Australia’s changing age demographic and its implications for the superannuation industry.
The research makes clear the impact of the baby boomers on the Australian population, pointing out that the proportion of the population aged over 65 will roughly double over the next 40 years to be almost one in every four Australians by 2042 with fewer working Australians to support them.
The NATSEM research clearly points to the fact that the superannuation guarantee will not be enough to guarantee most Australians a comfortable retirement.
It says that while the superannuation guarantee, as it currently stands at 9 per cent, was originally estimated as being sufficient to provide a gross superannuation income stream of around 40 per cent of final salary at retirement, this is not proving to be the case.
“Unfortunately, the assumed 40 years of contributions will not apply to all Australians and some may not have sufficient retirement savings even under the SG,” the research says.
The NATSEM data suggests that women will be particularly affected by the lack of retirement savings.
The data says it is clear that baby boomers cannot rely on government to finance large increases in the age pension and to meet all of their health and aged care demands given the fiscal pressures that the Government will be facing.
However, it also suggests that there are no hard and fast answers to the problem, with not even an increase in the superannuation guarantee representing a certain answer.
“Many commentators believe one way to ensure an adequate retirement income for baby boomers is to further increase the compulsory employer contribution to 15 per cent from the current 9 per cent,” the data says.
But it says calculations by NATSEM cast some doubt on the likely effectiveness of this proposal because most projections have been based on continuing full-time employment until age 65.
“NATSEM has modelled the likely future behaviour of baby boomers based on recent labour force participation trends and found that increasing the SG will only provide a small increase in the superannuation balances,” it says.
The research suggests that the current trend towards early retirement and reduced hours prior to retirement will effectively negate the increased contribution rate.
“Thus, the increases in the SG rate will only make a substantial difference to the retirement incomes of the baby boomers if they can be persuaded to remain in the workforce for longer,” it says.
The NATSEM data tends to point towards the Federal Government’s recent policy announcement about working beyond retirement age as being at least one of the answers, particularly in circumstances where declining new workforce entrants and declining fertility rates provides strong imperatives to employ mature age workers.
What is more, the conclusion attaching to the data analysis suggests that, as a society, Australia may have to redefine the whole notion of retiring at 65 or earlier.
“Early retirement seemed a sensible alternative in a society with high unemployment, as it opened up job opportunities for younger workers. But in a world of labour force shortages — and when many Australians can expect to live in reasonable health into their late 70s — it may not be desirable or even possible to sustain retirement at age 55 for such large groups of the population.”
AUTHOR
Mike Taylor
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