More Households Worry About Saving For Retirement

An increasing number of Australians believe they will fall far short of being able to fund their retirements, which may be leading to a greater focus on paying down debt and putting more aside in savings, according to the latest research from MLC.

Between the fourth quarter of 2016 and first of 2017, the MLC Wealth Sentiment Survey Q1 2017 recorded an increase in Australians who think they will have “far from enough” in retirement, up from 24 per cent to 32 per cent of respondents.

The research also identified a significant disconnect between the retirement Australians want and the one they expect to have. Most respondents described their ideal retirement with words like “relaxed”, “comfort” and “travel”, while one in five used words like “stressful”, “worried”, and “difficult” to describe how they expect their retirement will be.MLC Wealth Sentiment Survey Q1 2017

“While economic indicators are quite strong, at an individual level it’s apparent that Australians aren’t feeling confident about their finances, and this may be causing anxiety about retirement,” MLC General Manager of Customer Experience, Superannuation, Lara Bourguignon, said.

“What’s interesting is that respondents said they need over $1 million to retire on, but even small super balances help in retirement, so instead of being worried and fearful, people should feel motivated and empowered to take the little steps that make a big difference.”

More Australians paying off debt, saving

The survey also shows Australians are now taking debt and saving more seriously.

Overall, 21 per cent of Australians plan to pay off more debt in the next three months, outweighing those who intend to pay off less debt (13 per cent) than they were previously. Further, 26 per cent intend to save more and 19 per cent save less.

“With people reporting they are concerned about having enough in retirement, it may be that Australians are taking a closer look at debt and implementing savings strategies that will help improve their overall financial position,” Ms Bourguignon said.

“While the catalyst may be a lack of confidence about funding retirement, getting in control of your finances is very empowering, and so we may see people feeling a lot better about their money in the long run.”

Australians don’t feel wealthy enough to seek financial advice

Another key insight from the research was that Australians believe they need to be wealthy in order to seek financial advice, a finding that may be holding many back from reaching their financial goals, Ms Bourguignon said.

“Many respondents said they would visit a financial adviser if their needs were more complicated, or if they earned more or had money to invest. But tackling debt or implementing a savings plan is actually the ideal time to engage a financial adviser.

“We certainly need to start changing our view around advice being only for the wealthy; it’s for all of us.”

Other key findings:

  • Women are more pessimistic than men about having enough for retirement – 62% don’t expect to have enough to retire on, compared with 52% of men.
  • Despite concerns about funding retirement, three in four Australians haven’t seen a financial adviser in the last five years.
  • Only three in ten Australians are comfortable borrowing to invest, with a third of these preferring investing in property.

About the MLC Quarterly Australian Wealth Sentiment Survey

The MLC Quarterly Australian Wealth Sentiment Survey interviews more than 2,000 people each quarter. It aims to assess the investment environment by asking questions related to current financial situation, investment intentions, level of concern related to superannuation and other investments, change in life insurance, and distance to retirement and investment strategy.

Double digit returns ‘not sustainable’: AusSuper

From InvestorDaily.

Super funds will not be able to sustain the relatively high returns members have enjoyed in recent years, warns AustralianSuper chief executive Ian Silk.

Speaking at a Thompson Reuters event on Thursday, Mr Silk said that superannuation funds had experienced “stellar performance” this year but that this would not continue for long.

“One of the challenges for all super funds, including AustralianSuper, is to convince members that double-digit returns in … the global economic environment that we have, are not sustainable,” Mr Silk said.

While AustralianSuper had delivered “quite fantastic results” this year, Mr Silk outlined a number of factors surrounding the slowdown of growth.

“We’ve got inflation at 2 per cent, we’ve got sluggish growth, we’ve got no real wage growth, record low interest rates – these returns are just not sustainable,” he said.

AustralianSuper’s ability to deliver results has been “on the back of equity markets that are rising very strongly”, Mr Silk said.

But the “very important” and “frankly obvious message” he wanted to convey was that “real returns of that dimension are just not sustainable”.

Covering a number of other issues in the event, Mr Silk also vocalised his support of one of APRA’s new responsibilities announced earlier this week that granted APRA powers to act on poor-performing funds.

“To my mind, that’s an unambiguously good thing,” he said.

“Doesn’t matter what sector they’re in – if you’ve got poor-performing funds, in an industry that’s characterised by compulsion and not particularly well-informed members, then it behoves the regulator to act on the poor-performing funds and get them out of the industry.”

Giving you more say in your super? Not likely with these changes

From The Conversation.

The government is introducing a raft of changes to the regulation of superannuation in a bid to give consumers more power over their retirement funds. But, in fact, consumers are unlikely to use these new powers and the changes might not improve super fund performance.

The headline change introduces annual general meetings (AGMs) for superannuation funds. Previously these weren’t commonplace, as they are with companies. The government proposes these meetings will help fund members hold superannuation fund trustees and executives to account.

But many of us barely glance at our own superannuation account balances when the six-monthly statement appears in our inbox, so it’s reasonable to predict that, of the 15 million or so superannuation fund members in Australia, only a tiny fraction are likely to go to an annual meeting.

And why would we? One reason shareholders attend listed company AGMs is so they can vote on appointments of directors and remuneration of managers. However, superannuation funds are trusts, not public companies, and members won’t have the same rights even if they attend.

These AGMs will instead offer members the chance to quiz the executives, auditor and actuary, but no votes on material decisions. So this is nothing new: superannuation fund members have virtually no influence over trustee appointments, executive remuneration or other decisions.

Even the industry fund trustees, who are representatives of member organisations in super funds (such as trade unions), are not usually elected by fund members but are appointed by their sponsoring organisations.

If members are consigned to tea and biscuits with the fund chairman, where is the consumer “power” in Financial Services Minister Kelly O’Dwyer’s reforms? It rests mainly with the regulator, the Australian Prudential Regulation Authority (APRA).

The key changes intend to give APRA more responsibility for protecting the interests of superannuation fund members. This is particularly in relation to MySuper – the standardised default superannuation product.

Because superannuation is mandatory for most employees, the system captures many people who don’t have the will or the skill to make active choices about what fund manages their retirement savings. This includes decisions on where their savings will be invested, and what level of life insurance cover they take. Passive members don’t “shop around” for efficient providers, to their own cost.

Following the paternalistic reasoning of the Cooper Review, successive governments have shepherded passive superannuation fund members into MySuper options. MySuper products must have a single diversified investment strategy, are allowed to charge only a limited range of fees and must offer a standard default cover for life and total and permanent disability.

MySuper funds also have to report their investment goals and performance on a dashboard that is supposed to help people make comparisons between similar products. Employers must choose a default fund for their employees from the list of MySuper products.

Even so, MySuper product fees and investment performance vary widely. APRA quarterly superannuation statistics (2017) report that, in 2015, after MySuper was “up and running”, annual fees and costs on a A$50,000 account balance in fixed-strategy MySuper products ranged from $265 per year to $1085 per year (with a median of A$520 per year).

The investment performance of MySuper products also varies considerably. In the same year, the mean annual investment return (gross of expenses) for single-strategy MySuper products was 8.45%, the bottom 10% receive less than a 5.5% return and the top 10% receive more than a 10.9%.

While some variation in returns is due to intentional differences in the design of default investment products, some is related to differences in manager skill or efficiency.

These latest reforms, if passed into law, will mean APRA can refuse or cancel a MySuper authority, at a much lower threshold than applies currently. If APRA has reason to think that a superannuation entity that offers a MySuper product may not meets its obligations, that is grounds to refuse or cancel an authority. Since the default superannuation sector is large, such a decision would be extremely costly to the fund in question.

Under this legislation, trustees of MySuper funds will be obliged to write their own annual report card. Each year, trustees will have to assess the “options, benefits and facilities” offered to their members and the investment strategy (target risk and return). Trustees will also be required to report on the insurance strategy for members, including whether (unnecessary) insurance fees are depleting balances; and to evaluate whether the fund is large enough to do all these at a reasonable cost.

In each case, trustees are required to show that they are promoting members’ financial interests. They will have to compare the performance of their MySuper product to that of other MySuper products.

Even though the trustees score their own card, APRA will also examine these, under the threat that the MySuper authority could be cancelled. It’s not clear how much discipline these rules can impose on trustees, but there are some obstacles to implementation and some possible unintended consequences.

Most superannuation funds know very little about their members. Usually these funds only collect a member’s age, gender, some indication of income, and sometimes their postcode. To show that a financial service, investment or insurance product promotes (or fails to promote) the financial interest of a member will be very difficult on this little information.

For example, two 25-year-old men in the same profession will have very different needs for life insurance if one is single and the other has a non-income-earning partner and a child. But they will look the same to the MySuper trustees.

Also, having an annual peer comparison of investment performance by MySuper trustees will focus on short-term results rather than the long-horizon outcomes needed for a secure retirement.

So the governments’ claim that these changes will “give consumers more power” and strengthen regulation of this large sector are stretching the truth.

Author: Susan Thorp, Professor of Finance, University of Sydney

Australia’s retirement system on collision course with property market

From The New Daily

Australia’s retirement income policy is on a collision course with trends in home ownership and the result will be more older Australians struggling to support themselves in retirement. It will also make the superannuation system more inequitable.

The housing price boom is causing a major social change in Australia and the results of it are not being factored into policy making.

The latest figures from the 2016 census show that home ownership dropped markedly. Households renting rose to 30.9 per cent of the total, compared to 29.6 per cent in mid-2011. In the late 1980s, only 26.9 per cent of households rented.

Households owning outright dropped most markedly, from 32.1 per cent to 31 per cent while those owning with a mortgage dropped from 34.9 per cent to 34.5 per cent of households.

That is bad news for retirees because it means that more people will find themselves renting as they give up work.

“It’s a big thing because the family home is exempt from the pension assets test,” Grattan Institute research fellow Brendan Coates said.

“If you don’t own a home you will have to put aside more money to support yourself in retirement because of rental costs.”

The Association of Superannuation Funds of Australia recently found that to afford a comfortable retirement in a capital city a couple would need more than $1 million saved. That’s almost double needed by a couple who owned their home.

The trouble with saving large amounts like that is that it puts you outside the limits of the age pension assets test.

“Now most people in retirement get the pension,” Mr Coates said.

Holding a lot of assets outside the home means your pension will be discounted once you trigger the assets tests limits. And recent changes have made the situation worse.

In January this year, assets test limits for part pensions were cut by around $200,000. For single non-home owners the new limit is $747,000 and for couples $1 million, compared with $943,250 and $1.32 million previously.

So retiring without a home means many people will get less from the pension while they run down their retirement assets and will face rising rents as time goes by.

As this table from the Grattan Institute shows, renting leaves people far more vulnerable to financial stress.

While many renters on a pension may be be eligible for Commonwealth rent assistance, it maxes out at $132.20 per fortnight for a single and $124.60 for couples. Rents for a two-bedroom apartment average between $593 a week in Sydney and $329 in Adelaide (less in the regions), and have grown at around 1.6 times the rate of inflation over the past 30 years.

So being a renter will increasingly squeeze your income as your savings diminish and welfare won’t bridge the gap.

The toughening of the assets test and the rise of renting retirees “brings into stark contrast the treatment of home owners and non-home owners”, Mr Coates said.

Currently about half of age pension payments go to people with more than $500,000 in assets and 20 per cent to those with more than $1 million, most of whom are home owners.

It will also widen the gap between home owning and non-home owning superannuants as those without homes will struggle to build balances and have to spend what they have quicker to pay their housing costs.

Older Australians face housing crisis

From The New Daily.

Australian retirees will face a housing crisis within 15 years unless urgent action is taken, according to the Council on the Ageing.

The lobby group for seniors hosted a policy summit in Canberra in recent days where it drew attention to the impact on older Australians of rising prices, rising rents, huge mortgage debt and the scarcity of suitable homes.

The assumption that Australians retire in a home they own underpins the nation’s superannuation and pension systems, but summit attendees heard this could be under serious threat in as little as 10 to 15 years.

Keynote speaker John Daley, CEO of the Grattan Institute, warned that the looming housing crisis is a “ticking time bomb” for this demographic.

“We must address these issues immediately if we want to stand a fighting chance to mitigate the severity of the looming housing affordability crisis and to safeguard the future of older Australians before it is too late,” Mr Daley said.

The summit heard a key threat is that more Australians are entering retirement with mortgage debt, which they typically pay off in a lump sum from their superannuation.

Others enter retirement while still renting, which radically increases the amount of disposable income they need to cover monthly expenses.

The Association of Superannuation Funds of Australia, which represents both for-profit and non-profit funds, has estimated that couples who rent for life in the eight capital cities will need at least $1 million to retire comfortably.

In Sydney, a renting couple would require a lump sum at retirement of $1.16 million, almost double the $640,000 a couple who own their home debt-free would need, ASFA found.

The huge disparity is due solely to the ongoing costs of renting. For example, a 65-year-old Sydney couple who own their home will spend — if they live comfortably — about $60,000 a year, compared to almost $80,000 for a renting couple.

The problem is even worse for age pensioners. The 2017 Rental Affordability Snapshot report by Anglicare Australia found only 6 per cent of the market was affordable for a single older person living on the age pension.

The forum also discussed the growing incidence of homelessness among older people, especially women; and the implications for age pensioners of unaffordable rental properties in the cities.

COTA chief executive Ian Yates said older Australians are increasingly disadvantaged by the lack of supply of affordable housing that meets the physical needs of older residents.

“Older Australians are increasingly falling through the cracks in the growing housing affordability and supply challenge, with a growing number of older Australians needing to rent, rather than owning a home outright,” Mr Yates said.

“We are already starting to see rates of home ownership by older Australians decline, and this is forecast to drop even further in the next 10-15 years.

“This trend is already exerting extra pressure on the rental market and on many older Australians who are struggling to pay their rent, while also juggling other rising expenses like energy.

“There is a whole group of people currently in their 50s and 60s who will be retiring as renters, or if they are lucky enough to own a house, facing the prospect of retiring with a mortgage.”

An Australian researcher has estimated that anyone who doesn’t have a mortgage by the age of 45 will probably be renting in retirement, due to price growth outpacing savings, the risks of sickness and unemployment, and the difficulty of convincing a bank to provide a home loan.

The COTA summit also heard from Dr Ian Winter at the Australian Housing and Urban Research Institute; Judith Yates from the University of Sydney; Jeff Fiedler from Housing for the Aged Action Group; and Paul McBride from the Department of Social Services.

Many of the same themes were covered in a recent report by consulting firm KPMG. It confirmed that it will be very difficult for older Australians to be debt free in later years, largely because of housing costs.

ABC The Business Does Superannuation Fees

The ABC The Business segment on superannuation fees underscores the recent Rainmaker report. During the last 10 years Australians have paid around $230-billion in fees to superannuation funds and over the next 10 years, those fees are set to double.

in 2016 Australians paid $31 billion in fees on $2.2 trillion of superannuation. That amount of fees is about the same as the cost to the government of superannuation tax concessions, and more than half the $45 billion spent on income support for the elderly.

Of that $31 billion in fees, the for-profit sector (which also includes self-managed super funds) ends up with $28 billion, or 91 per cent, Rainmaker found.

Using Super to Save for a Deposit Clashes with Retirement Needs

From The New Daily.

Consultancy firm KPMG has thrown into question the legality of the Turnbull government’s budget measure to allow first home buyers to use superannuation to save for a deposit.

In its Super Insights Report, released on Wednesday, KPMG said the policy, which would allow home savers to salary sacrifice up to $15,000 a year into their existing super fund, was “difficult to reconcile” with the government’s own definition of the purpose of superannuation.

“Arguably, policies to address housing affordability do not fit comfortably within their proposed primary subsidiary objectives of superannuation.”

The Turnbull government introduced draft legislation in 2016 stating that the purpose of super was to substitute or supplement the age pension. It is yet to pass Parliament.

Labor has also seized on the issue, with Shadow Financial Services Minister Katy Gallagher branding the measure “inconsistent” with the proposed definition.

The KPMG report also called for a national debate to determine whether super should be able to be passed on through wills and whether it should be directed for national purposes like infrastructure.

The report found that industry super funds have caught up with their retail competitors, creating an even split between the two at the top end of Australia’s super system.

But while large funds are getting larger, there are still too many smaller funds which need to be consolidated, according to KPMG.

The report also found that the 9.5 per cent super guarantee (SG) needed to be lifted as it is not sufficient to provide the 65 per cent of working income considered adequate for retirement.
“The 9.5 per cent is a good starting point but you need to keep building,” KPMG actuarial partner Michael Dermody said.
However the planned increases in the SG to 12 per cent from 2025 will help provide adequate retirements.

“KPMG has calculated that a person on average earnings who starts their career after 2006 and works for 40 years will retire with a superannuation balance of more than $545,000,” he said.

“That is the level estimated to be needed for what the Association of Super Funds Australia has defined as a ‘comfortable’ standard of retirement living.”

The industry fund sector has been growing faster than the retail funds over the past decade and this is now almost on a par with its main competitor. When the other not-for-profit fund types, public sector and corporate, are added in they easily outstrip their for-profit competitors.

However self-managed super funds have also been a major growth area over the period and now have more assets under management than either retail or industry funds. The not-for-profit sector collectively still outstrips the SMSF sector however.

Super sector makeup. Source: KPMG

However, the member profile of fund types varies quite dramatically. Industry funds have a much younger profile resulting in much lower withdrawals and higher levels of net contributions.

The industry funds also appear to have lower-income members with the vast majority of contributions coming from employers under the SG. For the retail funds, however, more than one-third of contributions come from members themselves.

The net inflow of industry funds of $19 billion yearly is over 40 per cent larger than the $12 billion reported by retail funds.

The super gender equation. Source: KPMG

The gender divide remains an ongoing concern in superannuation with women in the 45 to 64 cohorts holding significantly less in their super accounts than men. The differential is driven by the gender wage gap and women’s disrupted career patterns as a result of caring responsibilities for children and the aged.

The workforce is still very gender segmented with building industry funds, Cbus and BUSSQ, reporting 92 per cent and 94.2 per cent male members. Meanwhile, health industry fund HESTA and pharmacists fund Guild Super report 80.7 per cent and 86.4 per cent female members, respectively.

KPMG wealth management partner Manish Prasad told The New Daily: “There is a shift to more equal positions between the retail, industry and public sector funds.

“Account numbers are flattening out with the industry rationalising, the introduction of [the ATO’s] Super Stream and the government’s lost account portal starting to work.”

Government may water down private super borrowing restrictions

From The NewDaily.

The Turnbull government has taken planned restrictions to borrowing by self-managed superannuation funds off the agenda in the short-term in a move that may presage a weakening of the proposals.

Under a plan announced in April, debt on the books of SMSFs would be added to fund values when calculating the new $1.6 million limits for tax-free super pensions.

The move was designed to stop people effectively getting around the cap by using borrowings to reduce asset values and paying the debts off over time.

The initial consultation period for the move expired on May 3 but the government has opened discussions again with the superannuation industry.

A spokesperson for acting Financial Services and Revenue Minister Mathias Cormann said: “Following stakeholder feedback, the government will consult further with stakeholders on the proposal to add the outstanding balance of a limited recourse borrowing arrangement (LRBA) to a member’s total superannuation balance measure in conjunction with consultation on the non-arm’s length income integrity measure announced in the 2017-18 budget.”

The SMSF industry has kicked back on the moves, saying they may force some investors to sell properties because they won’t be able to make extra non-concessional contributions to their fund needed for debt repayments once it has hit the $1.6 million limit.

“Some self-managed funds may not be able to use limited recourse borrowing arrangements if they will be relying on non-concessional contributions to repay some or all of the loan interest and capital because the gross value of the asset(s) will take them over the $1.6 million total superannuation balance and they will be unable to make further non-concessional contributions to service the debt,” the SMSF owners alliance said in a submission on the issue to Treasury.

The opposition has not expressed a view on the legislation, saying instead it would like to ban SMSF’s borrowing altogether.

“Labor has previously stated that we will restore the general ban on direct borrowing by superannuation funds, as recommended by the 2014 Financial Systems Inquiry, to help cool an overheated housing market partly driven by wealthy Self-Managed Super Funds,” a spokesman for Labor’s shadow Financial Services Minister Katy Gallagher said in response to questions from The New Daily. 

“This has seen an explosion in borrowing from $2.5 billion in 2012 to more than $24 billion today.” 

Stephen Anthony, chief economist for Industry Super Australia, said there was an argument for leaving out existing arrangements from the changes.

“I’d be happy to see transition arrangements put in place and allowing the restrictions to apply to arrangements from here on in,” he said.

“But if the outcome of the consultation is just to water down what I see as a useful structural reform, I’d be very disappointed.”

The industry fears that introducing the new restrictions to existing arrangements would mean some SMSF owners would be forced to sell properties held in their funds because they would not be able to make loan repayments.

The explosion of SMSF property debt has been a concern for regulators, with the Murray inquiry into the financial system in 2014 recommending SMSF borrowing be banned, warning “further growth in superannuation funds’ direct borrowing would, over time, increase risk in the financial system”.

The Reserve Bank concurred.

DomaCom test case: super-for-housing is back on the agenda

From The NewDaily.

Listed investment group DomaCom Ltd is suing the tax man to allow self-managed super fund investors to buy into properties they live in – a test case with potentially huge implications for superannuation and housing affordability.

DomaCom’s ambitions were stymied last October when the Australian Taxation Office said the company’s plans did not pass the ‘single purpose test’ for superannuation.

DomaCom uses trust structures to allow SMSF investors to buy a percentage of a property that they or their families live in. The ATO considered this creative use of trust structures to essentially allow people to gain a benefit by living in their property while holding it as a superannuation investment.

But DomaCom didn’t take that decision lying down. It moved to start an internal dispute process with the ATO. That process proved inconclusive, so now the company is asking the Federal Court to rule on the situation.

It would like the court to say that DomaCom’s structures are not in-house or related trusts for the purposes of superannuation.

To bring the case, DomaCom is financing a civil action taken by one of its clients, who has invested in an apartment built for student accommodation and would like his daughter to rent it while she completes her studies.

DomaCom CEO Arthur Naoumidis told The New Daily, “if we get the ruling in our favour then we would argue we have a precedent and we could follow it”.

However, were the courts to find in DomaCom’s favour, regulators are likely to be concerned on two counts. The purpose of superannuation could be undermined by allowing SMSF owners and their families to live in properties part-owned by their private super funds.

There would also be concern that housing affordability could be further damaged by SMSFs pouring money into residential property.

Even if that idea holds water legally, the ATO and Treasury would be unlikely to let it lie.

Helen Hodgson, associate law professor at Curtin University, told The New Daily last year that “if it was found to be technically possible I imagine fairly soon we would find someone saying the loophole should be closed”.

DomaCom is a listed investment company with lots of units and investments. But unlike other investment companies it allows people to choose a property they want to buy into and purchase through a dedicated sub-fund.

When a property is found by would-be buyers, DomaCom organises a book build where would-be investors promise to buy units at a certain price. If enough money is raised the sub-fund buys the property, essentially through crowd funding.

DomaCom has claimed it is not restricted by the sole purpose test because it ensures when people buy into a sub-fund they are legally buying into a small part of the overall DomaCom structure, rather than buying a single asset.

What DomaCom believes is that if an SMSF buys a stake in, or all of, a sub-fund, its owners can legally live in the building or rent it to their children because the SMSF would receive income from the overall revenues of the fund, not rent paid.

It would also allow children to build stakes in properties their parents bought in an SMSF through purchasing units in the sub-fund over time using their super contributions.

“The ability to use superannuation to help people into a home is clearly a topical issue in Australia and it is our belief that the DomaCom Fund can play a key role in solving this issue whilst still protecting the assets of the SMS,” Mr Naoumidis said.

Cost of ‘modest’ retirement up 33%: ASFA

Rising costs of living are impacting retired households according to new research.  The figures reveal couples aged around 65 will need to spend $59,971 a year and singles $43,665.

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.