In both the retail and nonprofit sectors of the superannuation industry, fresh studies are coming to the same conclusion; committing 9 per cent of salary toward retirement will result in most Australians failing to reach a level of savings required to meet their lifestyle expectations when they retire. The latest modelling done for IFSA by Rice Warner Actuaries has found a retirement savings gap of $695 billion.
The Rice Warner Research conducted for the Investment and Financial Services Association (IFSA) reveals the gap between what Australians have saved for their retirement and what they will need for a reasonable lifestyle has increased significantly. The retirement savings gap has blown out by $243 billion to $695 billion, an increase of $26,000 per person to $73,000 per Australian. In fact for people in midcareer, in almost all cases, the SGC regardless of the percentage will not be sufficient to provide adequate retirement income.
Rice Warner did a number of individual case studies to illustrate its findings. The report looked at a 22-year-old woman earning $40,000 a year who works until 27 and then takes five years off work to start a family. That woman will miss out on $63,700 in superannuation or 26 per cent of her super balance and will never be able to recover that lost money. In fact, the time she takes off work puts her so far behind that she needs to double her current super contributions to 18 per cent just to achieve a reasonably adequate life after work.
Compared to a 22 year-old man who also earns $40,000 a year but does not take a five-year break, the woman at retirement age has $227,000 less super than the man. The 9 per cent contribution rate is completely inadequate to provide Australians with a reasonable lifestyle once they finish work, and the time has come for the Federal Government to look at increasing the compulsory contribution rate to at least 12 per cent. The ACTU has asked for an increase to 15 per cent, while some sectors – such as tertiary and defence – pay as much as 18 per cent and 20 per cent.