1. Releases 2015

Media Release: 8 May 2015

Cost of living stabilises, but policy changes may mean people need to save more super: ASFA Retirement Standard March quarter

There was a pause in the cost of living in the March quarter for retirees, with a substantial fall in petrol prices offsetting an increase in the cost of pharmaceuticals and health and medical services, according to the ASFA Retirement Standard released by the Association of Superannuation Funds of Australia (ASFA) today.

Couples aged around 65 wanting to live a comfortable retirement will need to spend $58,444 per year slightly more (0.1 per cent) than in the previous quarter, while singles will need around $42,569, $35 a year less than the December quarter. Budgets for older retirees remained similarly unchanged.

Despite a reduction in cost pressures, ASFA says changes to the Age Pension that have been announced by the government today will have an impact on the savings people will need to live a comfortable retirement.

"Faced with growing age-related expenditures and falling revenues, governments clearly need to make tough decisions about how they will support the next generation of retirees to fund their post-work years. This will lead to changes to our retirement incomes policy framework and to the amount people will need to save to be comfortable in retirement," says ASFA CEO Ms Pauline Vamos.

"The Age Pension and superannuation systems are strongly linked, meaning adjustments to the taper rate and thresholds for the assets test will impact how they plan to fund their retirement. In most cases, people will require higher levels of private savings to ensure they have enough income to accommodate their spending needs.

"It's important they understand the impact now, so they can start planning how they will accumulate the extra savings they need."

While people may have different expectations of what they will need to spend to live a comfortable retirement, the Retirement Standard sets a benchmark for the minimum amount required. Under the current Age Pension assets test framework, ASFA estimates that a couple would need a joint superannuation balance of around $510,000 to achieve this.

"This assumes that as they drawdown on their capital and their income decreases, a part Age Pension will cover some of the shortfall. Given that the purpose of superannuation is to provide an income in retirement, it is reasonable to expect people to draw on their capital until their savings are exhausted, and not just rely on income generated from their account's earnings.

"If the changes proposed by the government this week are implemented, it is likely that most people will need to save more super in order to achieve a comfortable retirement.

"For example, increasing the taper rate for part-pensioners from $1.50 to $3.00 per $1,000 of assets, while also increasing the threshold at which the asset test starts to apply, would require a couple to save around $120,000 more for a comfortable retirement, requiring a super balance of $630,000. This will have a greater impact on single retirees, who will need to save $180,000 more in superannuation or a total balance of $610,000," says Ms Vamos.

"With all the fiscal pressures on the Federal Budget, it's increasingly important that people take control of their own financial future, instead of primarily relying on the government to provide financial support for their retirement.

"The earlier you can put money away, the more you will benefit from the effects of compound interest. Even if you can't afford to put extra money in now, you may be able to save on costs by consolidating your accounts, or adjusting your insurance cover to better suit your personal circumstances.

"The best thing you can do is get in touch with your superannuation fund and find out what services they have available to help you get the most out of your account, so that you have the best chance of living your post-work years free from major financial worries," Ms Vamos concluded.

Table 1: Budgets for various households and living standards for those aged around 65 (March quarter 2015, national)

  Modest lifestyle Comfortable lifestyle
  Single Couple Single Couple
Housing - ongoing only $70.05 $67.25 $81.19 $94.12
Energy $41.87 $55.61 $42.49 $57.63
Food $77.27 $160.07 $110.39 $198.71
Clothing $17.45 $28.33 $37.78 $56.67
Household goods and services $26.57 $36.03 $74.75 $87.57
Health $41.31 $79.73 $81.96 $144.65
Transport $90.76 $93.33 $135.25 $137.82
Leisure $74.01 $111.76 $227.32 $311.52
Communications $9.19 $16.09 $25.26 $32.15
Total per week $449.50 $648.20 $816.40 $1,120.84
Total per year $23,438 $33,799 $42,569 $58,444

The figures in each case assume that the retiree/s own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.

Table 2: Budgets for various households and living standards for those aged around 85 (March quarter 2015, national)

  Modest lifestyle Comfortable lifestyle
  Single Couple Single Couple
Housing - ongoing only $70.05 $67.25 $81.19 $94.12
Energy $41.87 $55.61 $42.49 $57.63
Food $77.27 $160.07 $110.39 $198.71
Clothing $17.45 $28.34 $37.78 $56.66
Household goods and services $46.65 $66.14 $145.03 $167.87
Health $89.23 $138.52 $122.20 $194.94
Transport $37.76 $47.20 $42.48 $51.92
Leisure $47.79 $71.30 $123.53 $170.76
Communications $9.14 $16.00 $25.11 $31.96
Total per week $437.22 $650.42 $730.20 $1,024.57
Total per year $22,798 $33,915 $38,075 $53,424

The figures in each case assume that the retiree/s own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.

More information
Costs and summary figures can be accessed via the ASFA website. The ASFA Retirement Standard Calculator can be used to obtain a breakdown of the Retirement Standard budgets for each state. Australians can find out more about superannuation on the independent Super Guru website.

For further information, please contact:
Lisa Chikarovski: Manager – Consumer Strategy, Media and Public Affairs, 0451 949 300.

About ASFA
ASFA is the peak policy, research and advocacy body for Australia's superannuation industry. It is a not-for-profit, sector-neutral, and non-party political national organisation, which aims to advance effective retirement outcomes for members of funds through research, advocacy and the development of policy and industry best practice.