CPA Australia has released its third Superannuation — the right balance? report, which evaluates the impact of Australia’s simplified superannuation changes from 1 July 2007.

The research shows that Australia’s superannuation system has improved significantly since the first report in the series was commissioned in 2001 and updated in 2004. Superannuation is now more accessible, benefit options are more flexible and incentives for increasing retirement savings have improved.

However, the research makes it clear that there is no room for complacency, either for policy makers or the general public:

• the benefits of the recent changes apply mostly to people on average or higher incomes
• adequate retirement savings will still only be a reality under ideal conditions where individuals enjoy 40 years of compulsory superannuation contributions and are in a position to make voluntary savings
• the majority of Australians will have less income in retirement than they have been accustomed to during their working lives

The research, conducted for CPA Australia by the National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra, compares the pre- and post-retirement living standards for 12 representative retirement groups, based on family type, income level and retirement age.

The research indicates that:

• Early contributions enjoy the benefits of compound interest much more than later ones. Contributing three per cent of take-home pay into superannuation from age 25 onwards will typically increase retirement income by a quarter. Delaying a superannuation top-up plan until age 45, for example, requires contributing between 9 per cent and 18 per cent of take-home pay, depending on income and family situation, to achieve the same effect.
• The earlier people retire, the less time they will have to build up their nest egg and the further their funds will need to stretch. To retire at age 55 after 30 years of super contributions requires double the annual contribution over those 30 years to achieve the same sized super pension as retiring at 65 after 40 years of contributions.
• Higher income earners will face the biggest lifestyle shock if they retire early. A single male who earns around $77,000 in today’s dollars and chooses to retire at 55 will more than halve his retirement income compared with an equivalent earner who continues working until 65. In contrast, a single male on a low income (about $34,000) will experience only a 20 per cent drop in retirement income if he stops working at 55.
• Renters need more superannuation than homeowners in retirement, particularly if they are single. Prior to retirement, renters and home owners tend to have similar housing costs, because rent and mortgage payments absorb about the same proportion of income. In retirement, though, home owners tend to own their homes outright, so they fare better than renters at this stage of life. Indeed, renters, on average, are 17 per cent worse off, with single renters barely managing a modest but adequate lifestyle in retirement.

For further information read Superannuation - the right balance?