More than half of Australian retirees are spending less than the age pension each year, raising significant questions about current retirement policy and super fund strategies, new research by Milliman has found.
This unexpected finding, which was also affected by age and location, was contained in Milliman’s “Retirement Expectations and Spending Profiles” analysis, which was based on 300,000-plus retirees’ real-world annual expenditure.
The analysis suggested mandatory and voluntary measures to boost super may not be enough to produce improved retirement lifestyles without a deeper understanding of the motivations driving retiree behaviour.
The findings come as a particular surprise, given the commonly used 50 per cent of median income poverty line typically captured many retirees, for example, the latest Australian Council of Social Service “Poverty in Australia” report estimated 13.9 per cent of age pension recipients were living below the poverty line.
Meanwhile, the Organisation for Economic Co-operation and Development “Pensions at a Glance 2015 Report” found a more pronounced issue, ranking Australia second lowest on social equity among 33 countries, with more than one-third of pensioners living below the poverty line.
According to Milliman, common measures and targets for adequate retirement incomes – including the median income poverty line – may provide a starting point for discussion, but the hard data suggested they can also mislead.
Such measures fail to explain the motivations and experiences of the majority of retirees who spend less than the age pension each year.
According to the federal government’s 2015 “Intergenerational Report”, running out of retirement savings is a key concern for many people given that a 60-year-old man is now expected to live a further 26.4 years and a 60-year-old woman for a further 29.1 years.
Milliman said this concern may be a driver for the substantial proportion of retirees with account-based pensions who draw down the minimum legislated annual amount.
“What is certain is that more information is needed – something funds can obtain directly from their members,” the analysis said.
“In this way, super funds’ general advice can be better aligned with the actual experience and needs of members.
“It is also part of an important, and broader, conversation about the adequacy of older Australians’ living standards after a lifetime in the workforce.”