Avoiding the retirement poverty trap
A report finds that 22% of retirees live in poverty and calls for drastic action.
Support our campaign
Your support can help make a difference.
Become a member or donate to support our Fairness in Retirement campaign.
More than one fifth of Australian retirees live in poverty, according to a recent report by the left-leaning think tank, The Australia Institute.
The Reducing poverty in retirement report compares the poverty rate of people aged 65 and over between Australia, Sweden, and Norway, which are nations with comparable GDPs.
It concludes that the public pension systems in Sweden and Norway ensure retirement security while Australia’s system does not.
The rate of poverty in retirement in Australia is 22.6% – more than one in five. In Sweden it is 11.1% and in Norway it is 3.8%. The poverty rate is measured from country to country as a percentage of the median equivalised household income. To live in poverty means to earn less than 50% of this amount.
The report found that, at the time the study was conducted:
The maximum amount that a single pensioner could get from the Australian Age Pension was $1,144.40 per fortnight ($572.20 per week), which was below the poverty line of $612.47 per week for a single person.
Australia’s high pension poverty rate is due to our relatively low spending on pensions as a percentage of GDP. Australia spends just 5.29% on the Age Pension, compared to an average for OECD countries of 7.43%. It is above 9% in both Sweden and Norway.
The authors emphasise two other factors. Firstly, that the Australian Government supports retirement income by forgoing revenue through generous superannuation tax concessions (worth $36.77 billion in 2019-2020), but that this support goes to wealthier Australians – those with the ability to top up super – as opposed to those on low or no incomes.
They also note that guaranteed Swedish and Norwegian pension systems allow recipients to work as much as they wish, unlike the Australian system which has low-income allowances before pension entitlements are reduced.
For years National Seniors Australia (NSA) has been advocating for a universal age pension along the lines of the Scandinavian models and that of New Zealand
A universal pension does away with means testing and would enable pensioners to engage in as much paid work as they want, without being penalised for earning more than the income test limits.
It’s part of our Fairness in Retirement Income campaign covering policy initiatives such as:
Fair and consistent deeming rates
Let pensioners work
Increased age pension gifting limits.
A universal pension would give everyone a basic amount of money. It would eliminate means testing, doing away with deeming and taper rates, which complicate the retirement planning of millions of retirees.
Under a universal pension, retirees would earn as much as they like from their investments or from work but still get a pension. They would simply pay tax to fund their entitlement, making the system sustainable.
They would only pay back the pension when they earned sufficient income in a given year, giving all retirees access to a year-on-year safety net.
As a first step, we are calling on the Federal Government to commission a full cost benefit analysis of adopting a universal pension.
Support our campaign for universal pension by signing up to the campaign or by sharing this page with your friends and family
The Australian Institute report describes our pension and super system as “broken”, which combined with housing unaffordability condemns more people to “the brutal double whammy of going through their entire working life unable to afford a home and ending up in poverty when they retire.”
The institute’s solution is to reduce or remove the concessions to those retiring with millions of dollars and use that money to increase to the Age Pension.
The report also supports our proposal to allow older Australians to earn income to supplement the Age Pension.
The report found that Australia spends almost as much giving tax breaks to wealthy retirees as it does providing a safety net – the Age Pension – to those with little or no retirement savings.
“Rather than ensure people are able to retire with dignity, Australia’s superannuation system is geared towards reducing tax for the wealthiest in society. Sweden and Norway show that there are better ways of doing things,” the report asserts.
“A large number of Australian retirees still rely on the pension as their main source of income, yet we spend less on public pensions than countries like Sweden and Norway.
“At the same time, our super system offers massive tax concessions that mostly benefit the wealthy. These concessions cost us nearly as much as spending on the Age Pension. We should be supporting retirees who are truly struggling.”
The full report can be found here.
Related reading: AI, Retirement Essentials, NSA
