Australia’s superannuation system needs a revamp, with new data showing today’s average worker retires with just one third of what they need to live modestly.
A sensitive recommendation in a new Deloitte report recommends taking unused super away from a dead retiree’s dependants and putting it into a pension pool for other Australians who need it.
With the ratio of working Australians for retirees forecast to drop from five to 2.9 in the next 20 years, there won’t be enough workers to fund pensions for everyone.
The report says governments and super funds have to better serve and empower retiring Australians, but that workers must be engaged and take responsibility too.
To live modestly in retirement today, an Australian man needs a lump sum of $340,000 (woman: $370,000) and to live comfortably $610,000 ($680,000), the report calculated.
But the average balance for a man aged 60-65 is just $114,000 and $94,000 for a woman.
Australians should contribute at least 17-19 per cent of their salary to super for 40 years while working if they wanted to live comfortably in retirement, report author and Deloitte special superannuation adviser Wayne Walker said.
That means topping up the Superannuation Guarantee – which currently has 9.5 per cent paid by employers and is rising to 12 per cent – with their own salary.
“Australia is very proud of its super system but our conclusion is that it is not doing as well for individuals as the healthy growth in the system as a whole suggests,” Mr Walker said.
One inefficiency was that seven to 10 per cent of super contributions flowed out of the system when a person died early and went to their dependants.
Mr Walker recommended lump sums be replaced with an annuity annual income, so leftover money went to others who outlived their super as a pension.
“It is not an easy matter for a government to introduce pensions but the financial case is very powerful,” Mr Walker said.
The report also supported people working well beyond 65 years, but the government had to back up policies in the recent budget plan to raise the retirement age to 70.
Employers had to be encouraged with flexible work arrangements, infrastructure such as broadband and office locations around older populations, Mr Walker said.
More competition would also force the funds to lift their game, while educating members and offering more investment options could help those close to retirement reduce their risk.
A generation of people that retired around the time of the GFC had much of their super wiped out after stock markets slumped.
Mr Walker said about 80 per cent of members did not actively choose the default fund they were a member of and up to 95 per cent held the default investment option.
“As individual Australians you can’t just rely on other people to make decisions and then at end of the day say, `I didn’t know, I didn’t care and I left it too late,” he said.