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Retirement cost increases driven by power prices, health care, food and rates

Media Release 29 May 2017

29 May 2017

Retirement cost increases driven by power prices, health care, food and rates

Significant hikes in the cost of power, health care, food and rates over the past 10 years have driven increases in the amounts needed to achieve both modest and comfortable retirements, according to the latest data from the Association of Superannuation Funds of Australia (ASFA).

It is more than a decade since the first release of the modest and comfortable ASFA Retirement Standard (RS) budgets.

Every three months since June 2006, they have tracked the rise and fall of items that comprise average household budgets. Updates reflect inflation and provide detailed budgets of what singles and couples need to support their chosen lifestyle.

Between June 2006 and March 2017, the RS budget at the modest level for a single person increased by 33 per cent, while the single comfortable budget rose by 23 per cent.

The budget for a couple at the modest level increased by 36 per cent and at the comfortable level by around 26 per cent.

ASFA CEO Dr Martin Fahy said the figures compared to an overall 28.6 per cent increase in the Consumer Price Index (CPI).

“The categories of expenditure that really impacted the budgets are not altogether surprising,” he said.

“Over the period, electricity costs increased by 124 per cent, health costs by 60 per cent, property rates and charges by 83 per cent and food costs by 24 per cent.

“Price changes for less essential items tended to be lower and in some cases prices fell.

“The price of clothing fell by a total of three per cent over the period with an eight per cent fall in the cost of communications (including telephone and mobile phone charges).

“The cost of international holidays rose by a relatively modest 16 per cent over the period.”

Over the more than 10 year period, the maximum Age Pension increased in real terms, by 70 per cent for a single person and 54 per cent for a couple, from a starting base far too close to the poverty level.

The Age Pension is adjusted by what is the greater of the increase in average wages or the CPI. During the period, average earnings rose by 43 per cent.

There also were some discretionary increases made to the rate of the Age Pension, particularly to the single rate. However, despite these various increases, the Age Pension alone still does not permit a retiree to achieve even a modest standard of living in retirement at the levels set by the ASFA RS.

The increases in the Age Pension over and above the increase in the CPI and in wages have helped contain the savings required at the time of retirement, in order to support either a modest or comfortable lifestyle.

On the other hand, the tightening of the means test has led to an increase in the amount of retirement savings needed to support a comfortable standard of living in retirement.

Other price increases of interest included: tobacco (not in RS budgets but consumed by many retirees) up by 178 per cent; wine up by only six per cent, but beer up 45 per cent; rents up 51 per cent; postal services up 45 per cent; vet fees (not in RS budgets) up 49 per cent; and, insurance costs up 72 per cent.

Dr Fahy said both budgets assume retirees own their own home outright and are relatively healthy.

“Of increasing concern is the reality of many more retirees at the mercy of the private rental market, so when you consider the increase in renting costs, it highlights the need for increasing numbers of retirees to have much greater super balances to support a reasonable retirement,” he said.

In the latest RS updates for the March quarter, there was a slight increase in the cost of living for retirees, with increases in the prices of petrol, medical and hospital services and electricity.

The ASFA RS March quarter figures indicate couples aged around 65 living a comfortable retirement need to spend $59,971 per year and singles $43,665, both up 0.3 per cent on the previous quarter.

Total budgets for older retirees increased by around 0.3 per cent at the comfortable level and 0.6 per cent at the modest level.

Over the year to the March quarter, there was a 1.8 per cent increase in the budgets, slightly lower than the 2.1 per cent increase in the All Groups CPI.

Dr Fahy said the cost of retirement over the most recent quarter only increased by a relatively small amount but many individuals would still find it difficult to achieve a comfortable standard of living in retirement.

“Over the longer term, the cumulative increase in retirement costs has been considerable,” he said.

The most significant price increases in the March quarter contributing to the increases in annual budgets were for automotive fuel (5.7 per cent), medical and hospital services (1.6 per cent) and electricity (2.5 per cent). Fluctuations in world oil prices continue to influence domestic fuel prices.

The most significant offsetting price falls were for international holiday travel and accommodation (-3.8 per cent) and fruit (-6.7 per cent).

Overall, food prices fell 0.2 per cent in the March quarter. The main contributor to the fall was fruit (-6.7 per cent), due to plentiful supplies of both year-round and summer fruit. Over the last 12 months, food prices rose by 1.8 per cent.

International holiday travel and accommodation prices fell 3.8 per cent due to the winter off-peak seasons in Europe and America.

Clothing and footwear prices fell 1.4 per cent in the quarter, reflecting discounting during the post-Christmas sales.

The price rises for both medical and hospital services and pharmaceutical products reflect the annual cycles for the Medicare Benefits Scheme and Pharmaceutical Benefits Scheme (PBS).

Insurance prices increased 0.8 per cent in the quarter. Over the last 12 months, insurance prices have increased by 6.8 per cent.

Expenditure on education is not included in the retirement budgets but some retirees paying school fees for their grandchildren would be affected by a 4.1 per cent increase in secondary education school fees following the commencement of the new school year.

Table 1: Budgets for various households and living standards for those aged around 65 (March quarter 2017, national)

lifestyle – single
lifestyle – couple
Comfortable lifestyle – single Comfortable lifestyle – couple
Housing – ongoing only $76.18 $73.13 $88.30 $102.35
Energy $44.06 $58.52 $44.71 $60.64
Food $78.69 $162.99 $112.41 $202.33
Clothing $17.36 $28.19 $37.58 $56.37
Household goods and services $27.07 $36.70 $76.14 $89.20
Health $44.84 $86.55 $88.97 $157.03
Transport $93.73 $96.39 $139.68 $142.34
Leisure $74.94 $111.65 $227.10 $311.22
Communications $8.19 $14.34 $22.51 $28.65
Total per week $465.07 $668.45 $837.41 $1,150.13
Total per year $24,250 $34,855 $43,665 $59,971

Table 2: Budgets for various households and living standards for those aged around 85 (March quarter 2017, national)

lifestyle – single
lifestyle – couple
Comfortable lifestyle – single Comfortable lifestyle – couple
Housing – ongoing only $76.18 $73.13 $88.30 $102.35
Energy $44.06 $58.52 $44.71 $60.64
Food $78.69 $162.99 $112.41 $202.33
Clothing $17.36 $28.19 $37.59 $56.37
Household goods and services $47.52 $67.37 $147.73 $170.99
Health $96.86 $150.37 $132.65 $211.62
Transport $39.00 $48.74 $43.87 $53.62
Leisure $47.74 $71.23 $123.41 $170.59
Communications $8.14 $14.25 $22.37 $28.48
Total per week $455.55 $674.80 $753.04 $1,057.00
Total per year $23,754 $35,186 $39,266 $55,115

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.

Table 3: ASFA Retirement Standard budgets for various households and living standards for those aged around 65 – 10 years comparison

Retirement standard Modest Comfortable
  Single Couple Single Couple
Jun-06 18,192 25,603 35,430 47,507
Sep-06 18,393 25,920 35,789 47,967
Dec-06 18,409 25,892 35,731 47,824
Mar-07 18,375 25,780 35,668 47,766
Jun-07 18,654 26,154 36,141 48,374
Sep-07 18,742 26,339 36,319 48,648
Dec-07 18,920 26,531 36,607 49,962
Mar-08 19,141 26,851 37,002 49,502
Jun-08 19,399 27,151 37,452 50,086
Sep-08 19,617 27,454 37,829 50,561
Dec-08 19,450 27,366 37,621 50,414
Mar-09 19,533 27,547 37,822 50,771
Jun-09 19,686 27,695 38,101 51,132
Sep-09 19,901 27,902 38,403 51,437
Dec-09 19,996 28,080 38,611 51,727
Mar-10(a) 20,981 30,399 39,159 53,565
Jun-10 20,973 30,382 39,081 53,456
Sep-10 21,132 30,557 39,302 53,729
Dec-10 21,218 30,708 39,393 53,879
Mar-11 21,587 31,263 39,852 54,562
Jun-11 21,746 31,519 40,121 54,954
Sep-11 21,957 31,767 40,412 55,316
Dec-11 21,930 31,675 40,407 55,249
Mar-12 21,946 31,643 40,297 55,080
Jun-12 22,024 31,760 40,391 55,213
Sep-12 22,539 32,511 41,090 56,236
Dec-12 22,585 32,555 41,186 56,339
Mar-13 22,641 32,603 41,169 56,317
Jun-13 22,654 32,656 41,197 56,406
Sep-13 23,032 33,120 41,830 57,195
Dec-13 23,175 33,358 42,158 57,665
Mar-14 23,283 33,509 42,254 57,817
June-14 23,363 33,664 42,433 58,128
Sep-14 23,489 33,784 42,597 58,326
Dec-14 23,469 33,766 42,604 58,364
Mar-15 23,438 33,799 42,569 58,444
June-15 23,662 34,051 42,861 58,784
Sept-15 23,695 34,090 42,962 58,915
Dec-15 23,797 34,226 43,184 59,236
Mar-16 23,651 34,064 42,893 58,922
June-16 23,767 34,216 43,062 59,160
Sep-16 23,996 34,560 43,372 59,619
Dec-16 24,108 34,687 43,538 59,808
Mar-17 24,250 34,855 43,665 59,971

(a) From March 2010 an adjustment was made to the overall package of goods and services at each of the levels in the Retirement Standard to reflect changes in community living standards. This included allowance for private health insurance in the modest budgets for the first time, reflecting the high incidence of private health insurance among retirees

For further information, please contact:

Teresa Mullan, Media Manager, 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. ASFA’s mission is to continuously improve the superannuation system so people can live in retirement with increasing prosperity. We focus on the issues that affect the entire superannuation system and represent more than 90 per cent of the 14.8 million Australians with superannuation.

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