Australia’s savings on the increase.

Australians have learnt a valuable lesson from recent tough economic times, and have been busy squirrelling away savings in order to protect themselves from any further uncertainty; RaboDirect research shows.

Impressively, almost a third of Australians have a savings safeguard that would last them at least seven months if they had to live off it – up from 19% in 2012 to 29% in 2013. And at a national level, the average savings buffer increased by 43 days last year – giving people at least an extra month to live off in the event they lost their job.

The findings paint a much rosier picture of the nation’s savings habits and outlook compared to just over one year ago when almost half of Australians were living on the brink and had one months’ savings or less worth to live off if they lost their job.

According to RaboDirect’s Group Executive Manager, Greg McAweeney, while it is important to be prepared for the unexpected, it isn’t about focusing on the negatives but about positively planning for the future.

“When viewed on a global economic scale, Australia came out of the financial crisis looking pretty good, particularly compared to parts of Europe and the United States. That being said, we saw the national unemployment rate rise to 5.8% in November 2013 which begs the question, are we out of the woods just yet?

“Our latest national research shows that 17% of Australians said they had felt the effect of an involuntary loss of employment in their household in the previous 12 months. It’s unfortunate that the research also indicates that those who are already struggling are most likely to have felt the impact of the tighter job market.

“While no one can say exactly what the future holds, we should focus on the things we can control such us our individual savings habits. And being in control of this can also provide peace of mind. In fact, at least a third of the population say that they are putting money aside because savings make them feel more comfortable,” Mr McAweeney said.

So what do our current savings habits say about us?

Saving more helps us deal with the dreaded d-word

In the past few years Australians have made a name for themselves as good savers. A fifth of the population is saving between $200 and $500 each month – or $2,400 – $6,000 a year. That equates to a new plasma TV or a round the world trip for two each year! At the same time, we also felt better about dealing with debt, with 23% in 2013 saying they feel very comfortable about paying off debt.

We’re savvy savers but are still falling prey to the wrong savings products

Average savings balances have increased to $1,995 in 2013 up from $1,396 in 2012. However, we’re still falling trap to zero or low-interest accounts that do nothing to boost our savings, and often end up costing us money with fees and fines.

“Unfortunately too many Australians – 85% of the nation in fact – are missing out on millions of dollars in interest by leaving their money laying idle in everyday transaction accounts. We know the average balance sitting in Australians’ accounts is residing in an everyday transaction account, and in 2013 compared to 2012 this has increased by a whopping 42.9%,” Mr McAweeney said.

We’ve all got our reasons for penny pinching

According to RaboDirect, the top three reasons for saving are: to feel more comfortable; to save for a holiday; and to have money in case of emergency.

Additional key findings:

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The new type of account to RaboDirect, called Notice Saver, was developed in response to the insight that keeping some cash at arm’s length would ease the pain the for business owners when the big bills needed paying and would also help customers who wanted the security of a term deposit but with greater flexibility.

Greg McAweeney, Group Executive of RaboDirect Australia and New Zealand, explained:

“Notice Saver is not quite a High Interest Savings Account, nor a Term Deposit. It gives the high interest, fee-free benefits customers expect from RaboDirect – with a differentiating feature designed to improve budgeting, and that is the requirement to serve a notice period before withdrawing funds  31, 60 or 90 days, depending on the type of Notice Saver account chosen” Mr McAweeney said.

Unlike a Term Deposit, this isn’t an investment period but rather the amount of notice that must be given before funds can be withdrawn. Also, unlike a Term Deposit, it has a variable interest rate, tiered depending on the balance. 

“Notice Saver offers advisers a new option for their customers to diversify their portfolio further, With the flexibility of accessing their money with a specific notice period, but because the funds are tied up during the notice period, it offers very competitive rates of interest.  Best of all funds can be topped up at any time, so you can keep adding to your buffer and essentially reach your savings goals sooner,” Mr McAweeney said.

For advisers looking to recommend the best solution to clients in terms of their core cash holding, the Notice Saver accounts offer a unique solution.

“With official interest rates having fallen over previous months, clients will be turning to their advisers for guidance on products to use for their cash holdings, particularly the more risk-averse clients,” Mr McAweeney said.

“With the current search for yield, it is important to also consider the other factors that will impact your clients’ overall cash balances – such as fees. Notice Saver, like all our products, carries no fees whatsoever. 

Mr McAweeney finished by saying: “empowering customers is part of RaboDirect’s DNA.”

 “We have been telling Australians to take a hard look at their banks and at whether the products they have on offer are really meeting their needs.  This is also relevant to financial advisers and intermediaries who need to advise on which solutions best suit a client’s needs. If a product benefits the bank’s bottom line more than it does your client’s, take action. It’s their hard-earned cash after all,” he said.

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The most recent NSDB, which RaboDirect conducts annually, polled over 2,355 financial decision makers aged between 18 and 65, with a focus on Australians’ attitudes towards debt and savings. The survey results are weighted by gender, age and location to be representative of the broader Australian community, in line with statistics published by the Australian Bureau of Statistics.
 
According to Renee Amor from RaboDirect, over 69% of women follow a budget, compared to only 60% of men.  And this theme is reiterated when it comes to planning for the future, as 92% of women, compared with only 85% of men, believe they should be saving for retirement.
 
Ms Amor said that in the face of recent publicity highlighting the fact that so many Australians are seriously underfunded for retirement, both sexes should be looking at concrete ways to improve their financial outlook and making the most of their hard earned cash.
 
She then went on to list some simple steps to increase savings and decrease debt.
 
“It will be no surprise that effective budgeting comes in at step number one. A budget needn’t be complex, but knowing exactly how much you spend and what you spend it on is the first step to taking control of your finances and putting something aside in savings. 
 
“If you feel that you are not able to tackle your finances alone, seek advice from a professional financial planner,” she said.
 
Ms Amor said that the next step was to pay off your most expensive debt, such as your credit card, and not to be afraid to look for a better deal from your bank. 
 
“The NSDB found that men were more likely to switch banks, with 69% describing themselves as switchers, compared with only 63% of women, who were more likely to stick with the one bank.
 
“Nonetheless, it really does pay to take advantage of the best possible rates on offer for your savings, and that means using a true high interest bearing account versus an everyday transaction account, which typically pays little if any interest and charges fees for the privilege.”
 
Ms Amor also said that many Australians might be surprised to hear that collectively they are missing out on around $3.5 billion in lost interest every year by keeping their money in no- or low-interest bearing accounts.
 
While high interest bearing accounts cannot take the place of everyday transaction accounts, they can help savings grow faster.  Term deposits can also be a good option, as they provide a guaranteed return as well as higher interest rates. 
 
“In the better term deposits, there is the option of taking interest monthly, quarterly or half yearly, so locking funds away on a secure term still allows access to the interest,” she said.
 
Ms Amor finished by saying that even though 42% of women compared with 35% of men reported that dealing with money was stressful, following these few simple steps could reduce anxiety.
 
“Many Australians are already trying to do the right thing by saving. I would just like to encourage them to put their hard earned cash into true high interest bearing account or term deposits.  It’s a positive step that can make a real difference.”

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Lifewise’s recent survey of 1,207 Australians has revealed Australians overwhelmingly value a work-life balance with 76% of respondents recognising it as important to them and their families. But Australians are sacrificing this work-life balance with 3 in 5 Australians (62%) working extra hours simply to fund their lifestyle. 

“As a nation we are not only hard-working but we know how to have a good time after hours. Over two thirds of Australians recognise they work overtime not just because their jobs now require it but because it provides the necessary income to fund various aspects of their lives, such as bills, lifestyle choices and education. So why do we insure our precious jewelry, our beloved cars and our health but when it comes to protecting the income that allows us to purchase all of these items do we overlook it,” says Lifewise Campaign Manager, Holly Dorber. 

If the main income earner of an average Australian household was unexpectedly unable to work due to illness or injury outside of the workplace, Lifewise found that: 

•  76% of Australians would only be able to meet their current expenses for a maximum of 6 months
• 11% would last less than a week
• 19% would only last up to a month!

While two in five (39%) of working Australians have taken out life insurance, only 23% have the safety net of income protection in place, and the majority (59%) stated that not only did they not have income insurance; they did not intend to look into it. Only 17% indicated that they were considering investing in income protection in the near future. 

“Australians are working harder than ever to fund their lifestyle, yet these findings indicate that the average Australian worker and household is not prepared for the event of income loss and would struggle if the main breadwinner lost their job”, explains Dorber. 

Three in five (60%) working Australians stated that the entire household would have to reduce their standard of living in order to cope with the income loss if the main income earner was unable to work.   Work-life balance would remain unachievable, with nearly 46% stating that they would take up a second job, and 39% would work longer hours in the current job. 

Significantly, 30% indicated that they would need to rely on government assistance in order to manage their household expenses, and 17% would have to rely on their friends and family for help. 

“It is clear that Australians value a work-life balance with 76% of respondents recognising it as important. Many are working longer hours because of both the demanding requirements of their job and to fund their lifestyle and living requirements, yet working Australians are neglecting the need to protect their income and have a financial safety net in place. Lifewise hopes that by providing some of these findings, Australians will consider the next steps in protecting their incomes”, added Dorber.

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• The Reserve Bank has given a clean bill of health for the Australian financial system, highlighting the strength of domestic banks compared with their overseas peers.
• The Reserve Bank has indicated that the natural disasters earlier this year is unlikely to significantly impair bank assets and profitability. However the central bank did highlight that growth amongst domestic banks is likely to be more limited when compared to pre-crisis levels due to regulation.
• The central bank also commented on the improvement in wholesale bank funding, however it did note that banks have been less reliant on wholesale markets largely due to the increase in household deposits.

What does it mean?

• The Reserve Bank has effectively given Australia’s financial system the tick of approval highlighting that the recent natural disasters are unlikely to significantly hurt bank asset quality or significantly impair overall performance. Importantly the Reserve Bank believes that the underlying resilience of the domestic economy has kept the banking system in good stead. In fact the latest financial stability review goes so far as to suggest that domestic banks are still outperforming overseas peers.
• Even throughout and subsequent to the global financial crisis, Australia’s financial system remained in good stead. And looking forward it is likely that the banking will continue to be well ahead of its international peers. However the central bank did comment that nonperforming assets remain higher than a few years ago, but still low on comparison with international counterparts.
• The near term weakness in the domestic economy has largely been as a result of the rapid fire rate hikes and the resulting lift in consumer conservatism. However the string of natural disasters has also sapped momentum from the economy and it is likely to have a marginal impact on the banking sector. Also the Reserve Bank did warn that banks are unlikely to be able to grow at pre-crisis levels, largely due to tighter regulation and attempts to grow at those levels could induce risks.
• The central bank did once again weigh into the topic surrounding bank funding costs, commenting on the improvement in access to wholesale funding. However given the fact that consumers have been saving rather than spending, banks have been less reliant on the wholesale market, and “as a result their liquidity positions have improved further”. The central bank also did highlight that looking forward Australian banks are well placed to meet the new capital standards to be introduced under Basel III.
• Interestingly the Reserve Bank has once again highlighted that the level of conservatism being shown by households has resulted in improving household balance sheets. Additional savings and low unemployment should be beneficial in the longer run, resulting in stronger future spending. At the same time the Reserve Bank believes that the level of household debt remains historically high, and it would be helpful for borrowers to show further restraint.

• In the near term it is looking less likely that the Reserve Bank will need to raise interest rates. Inflation remains well contained, while several sectors of the economy including housing, construction and retail are showing signs of weakness. Monetary policy is already mildly restrictive and as such the Reserve Bank can afford to wait a few more months to assess data flow before once again moving on rates.
• Overall CommSec believes that the longer term fundamentals for the domestic economy remain sound. Employment growth is likely to remain healthy, while activity levels will pick up in the second half of the year. More importantly the Asian region continues to grow at a steady clip and as such the demand for commodities should ensure that the “once in a century” terms of trade boost remains part of the economic landscape. The additional flow of income which is currently being saved by businesses and consumers will drive up future spending adding further momentum to the domestic economic growth story.

Key points from the Reserve Bank Financial Stability Review:

Global banking System: “Confidence in the banking systems of major countries has generally improved since the previous Financial Stability Review.”

“The major international banks have continued to report profits and strengthen their balance sheets. Some banking systems are still under considerable strain, however, notably in parts of Europe, where recovery is being undermined by market concerns about sovereign debt sustainability.”

Banking system: “The Australian banking system has continued to perform better than those in many other countries, consistent with the relative strength of the domestic economy over recent years. Non-performing asset levels remain higher than a few years ago, though they are low in comparison with those in the major economies. Their largest component – nonperforming business loans – was beginning to show slight signs of improvement towards the end of last year, and the flow of loan loss provisions has already fallen significantly.”

“Australian banks are well placed to meet the new capital standards, particularly given the significant bolstering of their capital positions in recent years.”

Funding costs: “Australian banks have maintained ready access to wholesale funding markets in the past six months, but they have also had less need to raise wholesale funds over this period as growth in deposits continues to outpace growth in credit. This shift towards deposit funding has enabled banks to further reduce their reliance on short-term wholesale debt. As a result, their liquidity positions have improved further. Banks’ capital positions have also been substantially bolstered in recent years”.

Household balance sheets: Households “continue to exhibit a more cautious approach to their borrowing… reducing the growth in their debt outstanding to a rate more in line with income growth. Household indebtedness remains historically high, however, and recent increases in interest rates have lifted the aggregate debt servicing requirement. While indicators of financial stress are relatively subdued, a continuation of this recent borrowing restraint would help build additional resilience into households’ balance sheets.””

What is the importance of the economic data?

• The Reserve Bank issues its Financial Stability Review half-yearly. The RBA says that “these Reviews assess the current condition of the financial system and potential risks to financial stability, and survey policy developments designed to improve financial stability.”

What are the implications for interest rates and investors?

• A strong financial system is crucial for sustained economic growth. And the Reserve Bank’s positive assessment of Australian banks should provide investors with further confidence in the economic recovery currently underway.
• The financial stability review suggests that the Reserve Bank is more comfortable with the position of the domestic banking sector and the state of household and business balance sheets. But we continue to expect that the next hike is unlikely to take place before mid year.
• Our equity analysts have Westpac, ANZ, and National Australia Bank on a HOLD rating. This reflects the expectations of earning stability and fair valuations at present.

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The AMP Retirement Adequacy Index used data for the six months to June 2010 from more than 328,000 AMP corporate superannuation customers.

While overall super balances are up, reflecting a stronger economy and higher investment returns, superannuation contributions are still below 2007 levels at 12.5%, compared to 13% in December 2007.

A drop in discretionary contribution rates via salary sacrifice, which are at their lowest levels since the Index began, contributed to this fall. The biggest falls in discretionary contributions were seen in the 45-49 and 50-54 age groups, which dropped 1% (to 1.7%) and 1.8% ( to 3.3%) respectively.

AMP Financial Services Managing Director Craig Meller said the Index’s findings suggest some Australians who have decreased their super contributions risk compromising on their retirement goals.

“People need to carefully plan their finances, in particular their voluntary super contribution strategy, if they want a higher standard of living in retirement than their parents and grandparents.

“In the aftermath of the GFC people are naturally more cautious, but superannuation remains the most effective long-term savings vehicle – it’s tax effective and has a wide range of investment options, from cash and bank deposits, to property and infrastructure investments and equities,” Mr Meller said.

Other key points for the AMP Retirement Adequacy Index are:

• Overall retirement adequacy has increased just 0.1% to 71.4% mainly due to the increase in expected retirement incomes of 2.3% being offset by a corresponding rise in wages which has increased the level of savings needed for a comfortable retirement.
• Today’s workers can now expect to retire on an annual income of $46,746 per year in today’sdollars, a 2.3% increase to the previous six months.
• Average assets at retirement in today’s dollars rose just 0.4% from $650,737 to $653,108 over the six months due to falls in the value of non-super assets.
• While average balances for women have increased, the gap between female and male balances widened across all age groups, due to significant increases in male balances. The average balance for males was $54,061 compared to just $29,692 for women – a 45% difference.
• Overall contribution rates for customers under 50 are at their lowest levels since 2007. Contribution rates for members aged 20-24 years have fallen 1.3%; 1% for members aged 25- 29; 1.3% for members aged 30-34; and 2% for members aged 35-39 between June 2007 and June 2010.
• People are now in the workforce longer than ever before with a 25% increase in employment for people over 65 years old. The retirement age has increased to 64.4 years from 63.5 years in December 2009.

Access Economics Director Chris Richardson said it is likely the retirement age increase reflects the current environment.

“People delaying retirement is a predictable response to the recent Global Financial Crisis, where reduced superannuation account balances may have induced those nearing retirement to delay actual retirement until financial markets and account balances recovered.

“Whether this trend will continue will depend not only on economic factors but how the next generation of retirees view ageing,” Mr Richardson added.

The AMP Retirement Adequacy Index used data for the six months from January to June 2010 from more than 328,000 AMP corporate superannuation customers to predict retirement adequacy based on 65% of an individual’s pre-retirement income.

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

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The Council’s research shows a 30-year-old would save an additional $91,000, a 45-year-old would save an additional $80,000 and a 60-year-old would save $29,000 more than those without a financial adviser.

These amounts are conservative, do not take into account the additional benefits of comprehensive investment advice and are on top of the $594,000 the Government estimates an average 30-year-old will have in their superannuation when they retire.

The research, commissioned by the Financial Services Council and conducted by KPMG Econtech, provides an analysis of how financial advice affects savings behaviour. It shows that those with a financial adviser save an additional $1590 a year after advice costs compared to those without a financial adviser.

John Brogden, CEO of the Financial Services Council, said the research was compelling and demonstrated the significant value of financial advice in ensuring Australians saved more.

“Quality financial advice has the ability to change an individual’s savings behaviour and encourage greater financial discipline, no matter what their age or level of income,” Mr Brogden said.

“It is therefore critical that we get the Future of Financial Advice reforms right. The Government will have done all Australians a great disservice if the reforms make quality financial advice less accessible.”

The research also considered the level of life insurance held by those with and without financial advisers. It found that, on average, those with a financial adviser were at least four times more likely to hold some form of life insurance.

This is supported by industry studies, also compiled by KPMG, which show those who received financial advice had on average $260,000 worth of life insurance cover compared with only $100,000 for those who purchased insurance directly.

“Given 95 per cent of working Australian families do not have adequate levels of life insurance1, increasing access to advice is critical if we are to help more Australians adequately protect their families from financial hardship,” Mr Brogden said.

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Unfortunately, if they miss the signal it can make a significant difference to their financial position when they retire, says Mr Jonathan Philpot, wealth management partner at accountants and advisers HLB Mann Judd Sydney.

“Missing out on a couple of years of savings and its compounding effects over ten to twenty years can make a huge difference to the amount they have saved.

“Different people will reach this ‘wealth builder’ stage at different times, so it’s difficult to say precisely what age this is, but for most people it will be some time in their 40s, when their income reaches a peak, their mortgage is down to 50 percent or less of the home’s value, and retirement planning strategies become a focus.

“Generally, one of the first signs is that there is more disposable income available in the family and it’s important to recognise this so that a decision can be made to put some of the extra funds into savings rather than spending it all on the family’s lifestyle.

“It’s the first time in our lives when we are in control of our financial situation and can make big decisions about how to manage wealth, and the choices made now can have a significant impact on our financial future.

“For younger people, much of their financial situation is ‘automated’ and inflexible – a set amount goes into superannuation, another set amount goes to pay off the mortgage each month, and there is little opportunity to vary this or put aside enough money to do anything else.

“For those in retirement, there is a good level of flexibility; however there are still rules and regulations governing, for instance, how much you are able to contribute to super, when you are allowed to commence drawing a pension; and a minimum amount that must be drawn down.  There is also the limitation that people in this phase of their life can’t afford to be too aggressive in their investments, and must therefore keep to fairly balanced or simple strategies.

“However in the pre-retiree years there are a number of tax-advantaged strategies that can be adopted – but how these can be applied will depend on how successful wealth accumulation strategies have been.

“It is therefore critical that people who have the opportunity to change gears and focus on building wealth ten to twenty years before retirement, start doing more than just repaying the mortgage and making superannuation guaranteed contributions.

“As it also coincides with the peak income-earning years, there should be additional money available that can be put towards building wealth,” he said.

Mr Philpot added that there are three main strategies that people should focus on when they become wealth builders.  They are: reducing the mortgage; increasing super contributions; and looking at appropriate gearing to diversify their wealth.

Mortgage reduction

Mr Philpot says that people should plan to be mortgage-free by the time they enter retirement.

“Therefore any wealth accumulation strategy should include reducing home mortgages as a priority, especially as the interest on mortgages is not tax-deductible.

“This strategy should start as soon as possible with mortgage holders looking at ways of always paying more than the minimum amount or making mortgage payments more frequently than required.

“Given that we are in a rising interest rate environment, this approach also builds in a buffer against future interest rate hikes.

“However, it should be only part of an overall strategy as your home is a “lifestyle” asset but doesn’t help build your investment wealth, which is what provides future income,” he said.

Super contributions

The simple fact is that people don’t start thinking about their superannuation early enough, according to Mr Philpot.

“It used to be at age 50 that people started worrying about building their super balance, but now, in light of the restrictive superannuation contribution limits, they need to start thinking about it much earlier, when they are still in their 40s.

“A desired retirement income of $50,000 is not extravagant; however it requires around $1 million in superannuation savings, which most people will not be able to achieve without making significant contributions above the superannuation guarantee levels during their 40s and 50s,” he said.

Gearing

Mr Philpot says that gearing can be a useful strategy, as long as it is not just into another residential property, and is not overly aggressive.

“Many people’s wealth is tied up in the value of their home, therefore residential property market moves have a large influence on their future wealth. If the residential property market has a flat period for five years, it follows that most people will see no change in their net wealth.

“Simply buying another residential property for capital gain is therefore a flawed strategy unless there is other diversification.

“Most people have some exposure to the sharemarket through superannuation, but given how low most superannuation balances are, it is relatively small.

“There can be real benefit in borrowing to invest in shares as you will diversify wealth and increase access to more assets.  These are key ingredients to building wealth over the long term,” he said.

However, Mr Philpot cautioned against excessive use of gearing and borrowing against the home to purchase shares.

“Gearing is not for everyone and should be considered very carefully.  It means taking on a much greater level of risk with leverage into shares.

“The borrowing should be interest only, as most of the spare cash flow should be directed towards the mortgage.

“On the positive side, with the dividend yield at close to 5% on Australian shares and interest rates between 7-8%, there is not a large cash shortfall in the cost of holding the shares.  Also, with the Australian equity market still subdued, it is a good time to be buying for long term gain.

“Borrowing against the house to purchase shares has benefits over taking on a margin loan, as borrowers are not subject to margin calls when shares fall in value.

“In addition, the cost of the loan is about two percent cheaper than a margin loan,” Mr Philpot said.

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Almost half of Australians won’t pay off their mortgages before they retire, a nationwide debt and savings survey by RaboDirect, Australia’s online savings and investments bank, has found.

The National Saving and Debt Barometer found 49% of respondents with a home loan would be 60 or older before they had finished paying it off and more than two in five of those people aged over 40 have 20-plus years outstanding on their home loan.

The National Saving and Debt Barometer surveyed more than 2,000 financial decision-makers aged between 18-65 years across Australia on their attitudes and behaviours towards debt and savings in October 2010.

The survey found that three quarters of those who are likely to take their home loan into retirement are concerned they may not be able to sustain their standard of living through this period. More women (54 per cent) were concerned about this than men (41 per cent), the survey found.

“What we are seeing is a significant proportion of Australians who will carry their mortgage into their golden years, a time when they should be financially free and enjoying themselves. This significant household debt becomes a legacy of their lifetime of hard work,” RaboDirect General Manager Greg McAweeney said.

“It reflects a picture of hard-working Australians with their heads down, not seeing the future potential impact of ballooning personal credit card debt, insufficient budgeting and inefficient savings.

“Consumers need to understand the full financial picture; get back to basics such as setting a personal budget and a regular savings plan; and think twice before spending on the plastic.”

Consumers should also be regularly checking that key financial products, such as mortgages, transaction and savings accounts, insurance and any credit facilities, genuinely suit their needs and offer the best value.

“About half of those who responded to the survey think low-interest ‘transaction’ accounts are ‘savings’ accounts. This highlights that we’re in the dark when it comes to financial foresight. If you were to move your funds to a high interest savings account you could earn valuable interest that can be used to pay off that burdensome mortgage,” Mr McAweeney said.

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John Brogden, CEO of the Financial Services Council, said the findings highlighted the urgency of increasing the Superannuation Guarantee (SG) from 9 per cent to 12 per cent.

“The research shows the longer we delay the move to 12 per cent superannuation, the greater the cost for working Australians,” Mr Brogden said.

The research (undertaken by Rice Warner Actuaries for the Financial Services Council) provides a snapshot of Australia’s progress as a nation towards funding a comfortable retirement. The retirement savings gap is the difference between what is actually being saved through superannuation and what is needed to sustain a comfortable lifestyle after ceasing work.

“An adequate annual retirement income is defined as 62.5 per cent of a person’s last salary. Our research shows 9 per cent superannuation will fail to provide the population with their expectations of a comfortable retirement,” Mr Brogden said.

“The Superannuation Guarantee needs to be at least 12 per cent – this, combined with the Government’s plan to raise the concessional contribution caps for those nearing retirement and the SG age limit, would provide a 30-year-old on average weekly earnings with an additional $108,000 in their superannuation account on retirement.

“Increasing compulsory superannuation also has significant benefits for the Australian economy and the Budget. Higher savings would reduce Australia’s reliance on international investment, lower the current account deficit and ultimately provide a cheaper and more stable pool of funds for Australians to draw on.

“Higher contributions would also lower the tax burden on working Australians as the population ages by reducing the draw on the Age Pension.

“Parliament must support the rise to 12 per cent superannuation if Australians are to enjoy a comfortable retirement,” Mr Brogden concluded.

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