Not so “lucky country”: 1 in 5 Aussies retiring to poverty

Australians face the brutal reality of going through their entire working life unable to afford a home and subsequently ending up in poverty when they retire, a new report has found.

The Australia Institute's Reducing poverty in retirement report compared the nation's pension system to that of Sweden and Norway, and shows that Australia has a much higher poverty rate among older people than both Nordic countries. In fact, the Institute found that one in five Australians aged 65 and over are retiring into poverty, with this number likely to rise.

Institute chief economist Greg Jericho commented on the cruel irony of Australia being known as a rich country, when citizens could work for most of their life and still retire in poverty.

“I think the figures would shock most people,” Mr Jericho told NCA NewsWire.

“We are a rich country, but one in five Australians living in poverty in retirement is backwards. Australians view the country as being the lucky country, a fair country and an equal country.

“Australia’s broken superannuation and pension systems are condemning a growing number of retirees to financial misery in their sunset years.”

The ASFA Retirement Standard suggests an individual can enjoy a “comfortable and modest lifestyle” receiving around $52,000 a year, while a couple would need about $73,000 for the same standard of living.

These figures are based on the assumption that most Australians over 65 own their home outright, but the combination of an inflated cost of living and soaring house prices means that figure is decreasing.

Results from the latest census show that the Australian home ownership rate had dropped three percentage points in the last two decades, from 70 per cent in 2006 to 67 per cent in 2021.

While generally, the percentage of people who owned their home has remained between 67 and 70 per cent from the early 1970s, the ownership rate between generations has varied markedly since then.

Mr Jericho said introducing measures to increase home ownership would help, but Australia must also adapt our retirement systems to allow for an increasing number of renters and mortgage payers.

“We need to look at the current realities that more Aussies will rent in retirement,” he said.

“There are ways we can help pensioners living in poverty. The easiest way to do this is to raise the age pension.”

To afford this policy, the think tank suggest governments should look at reducing superannuation tax benefits for those “who will already retire in comfort”.

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A key finding of the report shows just 10 per cent of Australians reach retirement age with $1 million in superannuation, yet those people hold over half (51 per cent) of the nation’s total super reserve.

Mr Jericho said he was still supportive of superannuation as a whole but believed the system needed to be overhauled in order to maintain the quality of life older Australian deserve.

“We encourage people to be able to save through super. The problem is the people you want to encourage to save are those on the border between being on the pension or being able to survive on their superannuation. But those people don’t have a great deal of income in their 50s and 60s to put away for their retirement,” Mr Jericho said.

“The reason governments should give a subsidy [to increase the age pension] is for a public benefit. What we have here is a tax discount that provides no public benefit at all,” he said, referring to the $38 billion a year the federal government forgoes in super tax concessions.

“Rather than ensure people are able to retire with dignity, Australia’s superannuation system is geared towards reducing tax for the wealthiest in society. Sweden and Norway show that there are better ways of doing things."

The Institute's report shows the country has much to learn from Sweden and Norway. Where Australia spends 5.29 per cent of their GDP on the delivery of the Age Pension, Sweden spends 9.09 per cent and Norway 9.30 per cent.

As a result, 22.6 per cent of Australian retirees finish their working lives in poverty, compared to 11.1 per cent in Sweden and an impressively low 3.8 per cent in Norway.

With increased housing unaffordability and an ageing population, Australia is now seeing the far reaching effects of an ill-prepared social security system.

The 2021 census found one in seven people experiencing homelessness in Australia were aged 55 or older and an Australian Institute of Health and Welfare (AIHW) analysis of the country's specialist homelessness services, released early this year, lists the housing crisis (22 per cent), financial difficulties (16 per cent) and inadequate or inappropriate dwelling conditions (14 per cent) as the top three most common reasons for seeking assistance among the older demographic.

Most concerningly perhaps is a recent jump in the number of older women experiencing homelessness, with the amount growing by almost 40 per cent in the 10 years between 2011 and 2021.

It has become apparent that Australian women are increasingly susceptible to homelessness due to generally lower lifetime earnings, and therefore savings.

Mr Jericho said there is no better time than now to start fixing, what he calls, a broken system.

“Living in poverty is always hard, but the current cost-of-living crisis makes it even more difficult for retirees to meet their basic needs. If we reduce the inequitable superannuation tax breaks given to high-income earners we can reduce poverty among retirees. It’s time to take action and give them the support they deserve," he said.

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