With the majority of Australians expected to outlive their superannuation savings, the Financial Services Council (FSC) has opened the debate on increasing the preservation age for superannuation.

 

In his speech to the FSC’s Annual Conference, John Brogden said research conducted by Rice Warner Actuaries for the FSC shows that increasing the time spent in the workforce for every Australian by just one year reduces the superannuation savings gap by $200 billion.

 

Australia currently has a superannuation savings gap of $836 billion. That is, the difference between what is actually being saved through superannuation and what is needed to sustain a comfortable lifestyle after retirement.

 

This significant retirement savings gap makes increasing labour force participation of older workers in Australia a policy imperative for the financial services industry as well as for the government.

 

Australia has a lower proportion 55 to 64-year-olds in the workplace than the United States, the United Kingdom, Canada and New Zealand. In fact, New Zealand is 15 percentage points higher than Australia for the employment of this age group.

 

“With life expectancy now 79 for men and 84 for women compared with 72 for men and 79 for woman in 1992 when the superannuation guarantee was introduced, the time has come to consider whether the superannuation preservation age of 60 is appropriate,” Mr Brogden said.

 

“The Government deserves credit for increasing the age pension eligibility to 67 in 2009. It’s now time to close the seven year gap between the preservation age for superannuation and the age pension. The gap will accelerate consumption of superannuation before retirees become eligible for the age pension.”

 

Mr Brogden said this will put greater pressure on government finances and undo the benefits of lifting the age pension eligibility age.

 

“To achieve the dual aim of reducing longevity risk in superannuation and increasing labour force participation of older workers to drive economic growth Australia needs to debate the appropriate preservation age for superannuation,” he said.

 

For example, increasing the preservation age to 62 would make a direct contribution to reducing the gap and would increase retirement savings in three ways:

· Two additional years of contributions at 12 per cent;

· Two additional years of asset growth on the entire accumulated balance; and

· Two less years of consumption in retirement.

 

This would reduce the superannuation savings gap by $400 billion. t will also deliver higher economic growth by effectively forcing higher labour force participation of older workers.