The retirement adequacy of working Australians has edged slightly higher to 69.8%, up from 69.4% in 2011, but people are working for longer with average retirement ages increasing according to the December 2012 AMP Retirement Adequacy Index.
Stronger market conditions towards the end of 2012 and an average 6% increase in salaries year on year contributed to the slight rise in adequacy. However concessional contributions have dropped sharply, particularly among older workers.
Key points from the AMP Retirement Adequacy Index
- The average worker can now expect to retire on just under $52,000 per year, around $3,000 higher than 2011.
- The projected final salary for workers has risen by $5,000 a year due to an average salary growth of 6%, improved markets, and people working longer with the share of retirees aged over 65 rising from 24% to 28% over the year.
- Overall contribution rates into superannuation fell slightly over the course of 2012, ending the year at 12.1%, down from 12.3% in 2011. This is the lowest level since the Index began in 2007.
- Changes in contributions caps impacted overall contribution rates, with voluntary contribution rates, particularly for older workers, falling over 2012. For those aged between 55-59 years, total voluntary contributions fell from 7.8% to 6.7% and for those about to hit retirement, in the 60-64 bracket, they fell from 14.2% in 2011 down to 11.7% in 2012.
- The projected super balance at retirement for the average worker rose by around 7%, due to higher salaries and delayed retirement.
- The super balances of females moved in line with that of males over 2012, leaving the shortfall of women’s superannuation balances relative to males unchanged from 2011 at 32%.
As a result of government incentives, workers aged over 55 can now expect the age pension to account for a higher share of their total net retirement income, up 4% on 2011.
AMP Financial Services Managing Director Craig Meller said while it was good to see a slight uptick in adequacy, the analysis suggested declining levels of engagement with superannuation.
“The Index shows a slight increase in adequacy levels, which is good news for working Australians. However a sharp drop in voluntary contributions among older workers is a worrying trend as higher numbers of people approach retirement.
“One way to encourage voluntary contributions and better engagement is to raise the concessional contributions caps. We welcome the progress made this week in Parliament on legislation increasing the caps for older workers and look forward to the increases becoming law in the coming weeks.
“It’s important for individuals to think about what sort of life they want for themselves in retirement and to factor that into their planning. It’s been a challenging few years but it is important to remember that super remains the most tax effective long terms savings strategy,” Mr Meller said.
Deloitte Access Economics Partner Chris Richardson said:
“Falling levels of engagement means more pressure on the public purse. Australians need to be confident in the super system so they can make the necessary contributions to ensure they won’t be relying on the aged pension to prop up their retirement income.”
Economic forecaster, Deloitte Access Economics, used this data to measure the implications of the current super activity on future retirement incomes.