It is perhaps a bit sad but, along with the Colloquium of Superannuation Researchers, one of the things that I look forward to each year is the release of the annual statistical report of the Household, Income and Labour Dynamics in Australia (HILDA) Survey. It provides a lot of detail about how real Australians live, with a range of information relevant to superannuation.
It is sometimes claimed that the Age Pension alone would provide a substantial income replacement rate for many if not most Australian households. However, the HILDA data show that as at December 2016 average household disposable income was over $91,000 a year, with the median figure just over $79,000. Adjusting these figures to a per person basis, the average is $53,600 a year with a median of $43,900. While housing costs for retirees will generally be lower than for those of working age, the figures indicate that the Age Pension falls well short of what people typically spend. The survey results also indicate that the types of households with the lowest median incomes were elderly couples, elderly single males and elderly single females. Inequality has actually increased in these groups in recent years, but in a good way. Rather than the great bulk of retirees having incomes clustered around the level of the Age Pension, more retirees now have significant superannuation balances and associated private income.
Measurement of the incidence of poverty is not without its conceptual challenges. However, one common method is to measure the percentage of a population group with an income which is below 50 per cent of the median income for the whole population. For Australia this comes out a level just above the amount of the Age Pension. Retiree households, particularly single female retirees, had the highest recorded levels of poverty on this basis. However, with both increases in the Age Pension and in the superannuation balances of retirees, the measured level of poverty amongst retirees has fallen since 2009.
Retiree households are actually less likely than those in the labour force to experience financial stress in the form of not being able to meet basic financial commitments because of a shortage of money. Their lower housing costs on average, as well as more experience with living within means, are possible contributing factors to this outcome. However, retirees that experience financial stress are more likely than other groups to experience such stress in multiple years. Things generally do not get better in a financial sense once a person retires.
The incidence of financial stress tends to rise with being single, being a renter of private housing and, not surprisingly, having a low income.
The HILDA survey also provides information on the rates of self-employment, which is very relevant to the reach of the compulsory superannuation system. While there has been downward trend in the number of the self-employed who employ others, the share of the labour force of the solo self-employed has levelled out at around 8.5 per cent. However, some factors might have masked underlying trends. These include rising rates of labour force participation of women aged 55 and over who historically have not had high rates of self-employment. As well, growth in ‘gig economy’ jobs might be happening at the same time as a decline in other forms of self-employment (as has been happening in the taxi industry). Self-employment also is transitory for some, with around 25 per cent of the self-employed having moved over to be an employee over the three years to 2016.
The HILDA survey also explored levels of financial literacy. The proportion correctly answering all five questions asked on this topic ranged from 24.2 per cent for the 15 to 24 age group to 54.9 per cent for the 55 to 64 age group.
Results show university education is strongly associated with financial literacy, while those who have not completed high school have the lowest levels of financial literacy. Higher income and higher wealth are also associated with greater financial literacy, while government income support receipt is associated with lower financial literacy. Somewhat surprisingly, higher financial literacy does not have much impact on the level of savings that are made. Compulsion is a much more effective way of lifting savings than any education campaign attempting to lift financial literacy.
Having digested all this HILDA data I am now hanging out waiting for my next fixes of APRA and ATO data.