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Rise in costs for retirees
The cost of living comfortably in retirement has risen by 1.8% in a year for couples and 1.6% for singles according to the Association of Superannuation Funds of Australia (ASFA).
ASFA’s Retirement Standard September quarter 2020 figures show that retired couples aged around 65 need to spend $62,083 annually and singles $43,901, up by 3% and by 5% from the previous quarter. The increase from a year earlier was 1.8% for couples and 1.6% for singles.
The rise is largely driven by COVID-19 and increases in childcare costs. “COVID-19 has had a substantial impact on Australia’s financial and economic conditions but there has been a partial unwinding of both price increases and decreases that immediately flowed from the impact of the pandemic,” says ASFA CEO, Dr Martin Fahy.
“Dramatic changes in our lifestyles had a big impact on demand and prices right across the economy but for at least some categories of expenditure there is a return to something closer to normal.”
Retiree lifestyles, however, are yet to return to normal. With travel restrictions and changes to entertainment and dining-out options, more retirees are spending time at home doing repairs and renovations and buying household items.
Health insurance premiums remained unchanged in the September quarter but increased by around 3% for many retirees from 1 October. There are now 2.2 million Australians aged over 65 with private health insurance, up from 2.0 million just three years earlier.
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“Recent reductions in interest rates and dividends also are having an impact on the financial position of many Australian retirees,” Dr Fahy says.
APRA releases latest super statistics
Superannuation assets totalled $2.9 trillion at the end of the September 2020 quarter, with a 1.6% reduction in the value of total superannuation assets over the 12 months to 30 September 2020.
These figures, released by the Australian Prudential Regulation Authority (APRA) in its Quarterly Superannuation Performance publication and the Quarterly MySuper Statistics report, are primarily a result of investment losses sustained across the industry during the March quarter.
Contributions in the September 2020 quarter were 2.8% less than contributions in the September 2019 quarter.
Benefit payments of $33.9 billion were slightly lower than the $36.9 billion paid during the prior quarter. Benefit payments for the year to September 2020 were $112.3 billion, including approximately $34 billion paid under the Early Release Scheme which came into effect on 20 April 2020.
Net contribution flows were negative for a second consecutive quarter (-$6.4 billion) and were $10.2 billion for the year.
Returns not the main driver for SMSF trustees
It’s more than just costs and investment returns that motivate Australians when deciding to start a self-managed super fund according to a survey of nearly 800 SMSF trustees by the SMSF Association.
SMSF Association CEO John Maroney says the long-standing debate when comparing an APRA-regulated fund with an SMSF is typically restricted to a simple analysis of costs and returns, but the new survey indicates it’s not that simple.
“The key reasons why trustees chose an SMSF are control, flexible investment choices, dissatisfaction with their existing fund, and tax and estate planning. In a nutshell, it’s individuals wanting to take control of their financial future,” Mr Moroney says.
“The Association has always believed this to be case. Individuals who opt for an SMSF are those for whom being able to directly influence their retirement income strategy is very important. In many instances they are small business owners who not only like having that control but believe they can execute it responsibly, especially, in many instances, when they have an SMSF specialist advising them.”
The survey also reveals eight out of 10 trustees believe their SMSF is good value for money, nine out of 10 believe managing and engaging with their own SMSF provides them with a level of satisfaction, and almost half of all SMSF trustees own or have owned a small business.
The majority of SMSF trustees spend between one to five hours a month administering their SMSF and more than half of the SMSF members surveyed have had their SMSF for over 10 years.
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Financing ageing in place for older Australians
More than 80% of senior Australians own their own homes and for most it is their main store of wealth.
A recent study by the RMIT Centre for Urban Research and Heartland Seniors Finance shows that while many seniors want to stay in their home and maintain a comfortable lifestyle as long as they can, there is growing concern that a retirement savings gap coupled with rising costs of housing and living, and reduced access to the Age Pension means that many will not be able to realise that goal.
Home ownership rates of Australians born during 1947 to 1951 were 82% when they were aged 65–69. The number of Australians in this age group with a mortgage has tripled from 7% in 1995/96 to 23% in 2017/18. More Australians are entering retirement carrying significant debt that is difficult to service on their retirement income.
On top of this, innovative financial products designed to allow senior homeowners to ‘age in place’ are not well understood and the markets for them in Australia are not well developed.
The study shows that a deeper understanding of the range of financial products available, including reverse mortgages and other forms of equity release products, will benefit policy makers, suppliers, and consumers. As the Government pension bill becomes more onerous, it seems necessary for more Australian households to consider releasing their housing equity to fund their retirement.
Financial advice boosts wealth and health
Better access to professional advice could deliver more than half a trillion dollars to Australia’s economy, reduce spending on the Age Pension, increase personal incomes, and make us happier and healthier.
Latest research from CPA Australia and CoreData finds that if financial advice was properly implemented to every Australian, it could increase personal incomes by 30.6% – an average of $24,716, a year.
The nation’s economy could also be boosted annually by $630+ billion and Age Pension spending reduced by 21.6%.
Mental and physical health would also benefit from financial advice, as well as relationships and work satisfaction, particularly for women.
CPA Australia General Manager External Affairs Dr Jane Rennie says more than 60% of Australians do not currently receive professional advice. “This means that millions of people and small and medium-sized businesses are on their own when it comes to managing some of the most stressful and complicated aspects of our lives,” she says.
“While the potential economic benefits are tremendous, realistically it’s unlikely we will ever have a fully advised population. However, any increase in the uptake of professional advice from its current level could deliver an economic windfall.” Barriers preventing people from seeking professional advice identified in the survey include a widely held belief in their own abilities, affordability and a lack of trust. “Whatever their reasons for not seeking professional advice, our research shows that consumers and SMEs are paying a heavy economic and emotional toll for going it alone, which is ultimately shared by the whole community,” she says.