Lessons we can learn from Aussie Super's mistakes
20 March, 2015
There's nothing like watching a room full of Australians discuss their complex and ever-changing superannuation regime to make you feel good about your own.
I enjoyed being a fly on the wall at a Post-Retirement conference in Australia last week. You always learn something from these conferences because Australia has had 23 years of compulsory superannuation whereas KiwiSaver is still a spring chicken in its eighth year. I was pleasantly surprised to find most of the lessons were about future problems we might be able to avoid.
Australia has a two-tier retirement system a bit like ours. There is compulsory superannuation where employees pay 9.5 per cent of their earnings into a super fund and there is a "safety net" age pension which is means tested and ensures a minimum retirement income.
Over the years, Australia's regime has become quite complex, resulting in a massive financial services industry helping people understand superannuation and all its nuances.
There are tax complexities and you can have more than one superannuation fund (particularly if you have changed jobs) so knowing your overall position can be difficult.
Many super funds have features such as insurance and annuities which, while well-intentioned, can be tricky to understand and often quite expensive. Every new government in Australia seems unable to keep their mitts off superannuation so there has been continuous tinkering with tax rules, leaving members confused and in need of advice.
Despite its complexity, I like that the Australian retirement regime has been around long enough and retirement balances have increased to the point that retirement assets and retirement income are subjects everybody is tuned into. Retirement is part of the Australian language — people talk about it, the media write about it, and financial decisions are made with retirement in mind.
In 2012, the average superannuation balance for an Australian male was A$197,000 ($205,355) and for a woman A$105,000.
The Australian awareness of retirement was heightened last week because the Government released its latest Intergenerational Report. This five-yearly report was first issued in 2002; it forecasts the next four decades to see what life in Australia might be like.
The Intergenerational Report was initially intended to stimulate discussion and debate about population and productivity and so on. It has since been used as a bit of a political tool to justify certain political policies and government spending. But, at a minimum, it has encouraged discussion and an increasing awareness of future trends and the issues associated with a changing and ageing population.
The latest report highlighted some interesting and, for some, scary conclusions. It was quite a topic for conversation at the post-retirement conference because it largely focused on the nature of the Australian workforce in 2055 — with fewer employed people to support more people in retirement. I was interested because I suspect New Zealand might discover similar trends.
The report projected that, 40 years from now, the number of Australians aged over 65 will have doubled. There will be about 40,000 Australians over 100 years old in 2055 compared with 4000 today.
The number of people of working age to support those over 65 will fall from 4.5 to 2.7. The population pyramid will effectively be turned on its head — so there will be more 65-year-olds than 1-year-olds; there will be as many 60- to 70-year-olds as people aged 10-20.
The last Intergenerational Report said climate change was the biggest issue facing Australia. This year's report suggested longevity change (i.e. people are living longer and the population is ageing) is a bigger issue than climate change.
So, lessons for New Zealand? Well, we can't stop our population ageing but we can talk about it, raise awareness and preparedness and feel good that our straightforward (and so far politics-free) retirement regime is a darned good step in the right direction.