Retirement adequacy falls as Australians remain cautious

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The retirement adequacy of working Australians was at its lowest level since the GFC, falling almost 2 percentage points to 69.4% while projected retirement savings fell 7% to $492,000, according to the latest AMP Retirement Adequacy Index. 

Superannuation was a major driver of these falls with the average worker’s total superannuation contributions falling to the lowest level since the Index began in 2006 – at 12.3% of salary compared to 12.6% as at 31 December 2006, mainly due to a fall in voluntary contribution rates. 

The AMP Retirement Adequacy Index used data for the six months from June 2011 to December 2011 from more than 280,000 AMP corporate superannuation customers to predict retirement adequacy based on 65% of an individual’s pre-retirement income.  

The data factors in the increase in the superannuation guarantee from 9% to 12%. 

AMP Financial Services Managing Director Craig Meller said the drop in voluntary contributions, market volatility and ongoing subdued investor sentiment is impacting overall retirement adequacy and has the potential to adversely affect the future retirement lifestyles of Australians.  

“The Index shows salary sacrifice contributions have fallen across most age groups, particularly for older Australians who traditionally put more into their superannuation as they approach retirement, but are now restricted by caps on voluntary super contributions or worried about global markets.” 

“Consumer caution is also continuing to impact investment behaviour, post GFC, according to the Index so it’s important our industry continues to focus on educating customers about the benefits of super as a long-term savings strategy – offering individuals a wide range of investment options, including cash, and tax effective long term returns,” Mr Meller said.

 Key points from the AMP Retirement Adequacy Index: 

  • Overall retirement adequacy took a hit in the last six months of 2011, falling from 71% to 69.4%
  • The average worker today can expect to retire on just under $49,000 per year which is largely unchanged from the corresponding projection in June 2011
  • Overall, the projected super benefits for an average retiree fell by 7% to $492,000.  This drop, as a result of lower contribution rates, was enough to eliminate the projected gains expected from the introduction of the 12% super guarantee
  • Average contribution rates fell by 0.2% in the second half of 2011. Contributions from older workers fell over the period, although encouragingly younger age groups, in general, increased their overall voluntary contributions
  • Average balances for females fell less than that of males over the period, causing the gap between genders to narrow.  This may reflect different attitudes towards investment risk.

Deloitte Access Economics Partner Chris Richardson said the research shows the impact on future Governments that the combination of an ageing population and a drop in overall superannuation contributions may have. 

“An increasing proportion of older Australians, coupled with the drop in overall superannuation contributions, could put considerable strain on future governments and taxpayers as we see more people relying on the age pension to fund their retirement,” Mr Richardson said. 

Economic forecaster, Deloitte Access Economics, used this data to measure the implications of the current super activity on future retirement incomes.

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