Industry Super Australia (ISA) has released modelling it undertook on the government’s budget changes affecting retirement incomes.
Matt Linden ISA’s Director of Public Affairs told Business Insider the retirement income of someone aged 45 could fall by as much as 25% because of the changes.
The ISA modelling draws together the the full range of measures in the budget. The key changes affecting incomes related to the increase in the age pension from 67 to 70, the change in the way that pensions are indexed, and the deferral of the increase in the superannuation guarantee levy from 2019 to 2022.
Linden said retirement incomes in Australia rest on three pillars: the age pension, superannuation, and private savings. The pension and super are by far the most important.
As it stands, Linden says that most Australians won’t have enough super to rely on once in retirement, so the pension remains the cornerstone of retirement income plans, especially for the members of Industry Super funds.
This is why the indexation of pensions is the key to the 25% reduction in retirement income for someone who’s 45 years old today. By changing indexation from its current link to wages growth to an index linked to the consumer price index (CPI), Linden said incomes would fall by about 1% per annum for retirees which will have a huge cumulative impact on incomes in retirement.
Business Insider asked Linden why CPI wasn’t the correct measure and he said that the CPI, with a much broader basket of goods, was not representative of the basket of goods that a retiree would typically need, especially because of the high percentage of healthcare spending in retirement.
So its seems Australians in their 40s might have to start saving even more and sooner than we thought if we have any chance of a decent standard of living in retirement.
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