More working for longer to ensure decent retirement

The Age

25 January 2017

John Collett

Workers are retiring at age 61, on average. Just two years ago they were retiring at age 58.

Roy Morgan Research surveys more than 50,000 people a year on all sorts of things, including asking those intending to retire in the next 12 months what age they will be when they retire.

The sudden rise in the retirement age maybe a blip and doesn’t mean that the age of those intending retirees is going to keep rising at the same rate.

But there are likely to be factors that have made the current crop of soon-to-be retirees work for longer.

Many of those on the cusp of retirement are probably feeling that the odds of them being able to afford a comfortable retirement have lengthened.

Rules tighten

There’s the tightening of access to the age pension that took effect at the start of this year. And the qualifying age for the age pension is gradually rising from 65. For those born since January 1,1957, it is 67.

The “preservation” age, the age at which we can access our super savings when retired, is increasing from 55 and will be age 60 for anyone born since July 1,1964.

And then there are the lower caps on how much can be contributed to super.

It’s true that most of these measures, apart from the pension age rising to 67, are targeted at the better off. Ordinary workers are not affected and anxiety is being created by perception, not reality.

After all the political argy-bargy over changes to the age pension and super during the past several years, that they should have had their confidence in the system knocked is no surprise.

Many older people are concerned that if they put money into super that a future government might make it more difficult to access their money as a lump sum or tax-free.

Lower returns

But low returns on safe investments, such as term deposits, have probably also contributed to a feeling that it’s prudent to keep working for longer.

The Australian sharemarket had a bumper year in 2016 with a total return, including dividends, of 11.8 per cent. But that followed a return for 2015 of 3.8 per cent and a return of 5.6 per cent in 2014.

However, the returns on super over the past three calendar years have not been bad because most people have their retirement savings with their funds’ balanced option, which spreads the money between asset classes.

That means if one or two asset classes don’t do that well, some of the others will pick up the slack.

Superratings’ data shows that the median-performing balanced option returned 7.3 per cent during 2016, 5.6 per cent in 2015 and 8.1 per cent in 2014.

The reality is that super is doing the job that it is meant to do and further major changes seem unlikely.

And for home owners, the chances of a future government ever including the value of the house in the assets test for the age pension are vanishingly small.