Login
ISCOVER
It has often been said that ‘demography is destiny’.
Anyone who has ever picked up a newspaper is probably well aware that Australia’s current ‘demographic destiny’ revolves around a steadily ageing population. This ageing population is a result of innovation in science, healthier lifestyles and a general improvement in living standards globally – trends which are only going to accelerate.
To continue reading the rest of this article, please log in.
Looking for more benefits? Become a Premium Member.
Create free account to get unlimited news articles and more!
Looking for more benefits? Become a Premium Member.
Recently, the interim report from the Murray Financial System Inquiry found that by 2060 the number of people aged 75 or older is expected to increase by four million. This increase will mean that this group is projected to make up a staggering 14.5 per cent of our total population by that point, up from only 6.5 per cent in 2012.
The Murray report also highlighted the uncertainty many face around planning for retirement in the face of an increasing life expectancy. For example, the average 65-year-old Australian today is expected to live until they’re over 84 years (men) and 87 years (women), so they will need to be prepared to fund at least a minimum of 19 years of retirement – a figure which is only going to increase with advances in modern medicine and technology. Funding this retirement is going to put increasing stress on the Australian superannuation system, pension system and oddly enough, the property market.
Why is this so and what does it mean now?
The super system
The answer to this question is found in the way retirees may be forced to fund their retirement. Once the regular income stream from full-time employment disappears, retirees have two sources of regular funding available to them: their super savings – and once that’s depleted, the government-funded age pension.
As Club Plus Super sees it, the issue here is that the current super system allows people to use all of their nest egg in one hit – which will force some to rely on the age pension for their retirement. The Murray report referred to this phenomenon as a ‘lump sum culture’, and pointed out that close to half of Australian retirees take their super benefits as a lump sum only (instead of as an income stream).
The issue with this strategy is that it will leave many people living on a reduced income below the level they were used to. Even if you save for only a ‘modest’ lifestyle, which is $23,283 per annum according to the Association of Superannuation Funds of Australia, this type of lifestyle would not be enough to cover expenditure on such extras as entertainment, car maintenance or overseas holidays.
However, most people I know wouldn’t be content to spend their golden years just scraping by. For this reason I believe we’ll see many trying to compensate for this by selling the family home to unlock equity – and renting, downsizing or moving back in with their children.
A changing housing dynamic
We’ve already seen evidence that retirees are downsizing or changing dwellings to better support themselves in retirement. A national survey by the Australian Housing and Urban Research Institute targeting older Australians found that around half of respondents had downsized since turning 50.
The sheer scale of the rapidly ageing population may limit government intervention into the problem. However, the hundreds of thousands of retirees who are at risk of not being able to enjoy the retirement they envisaged suggests to me that many will look to alternate solutions to preserve their idea of what retirement should look like.
Demand for secondary dwellings such as granny flats has increased over the past few years, according to the founder of Genliving, a construction company specialising in these types of dwellings. This is not surprising as there are many additional benefits to parents moving back in with their kids outside of subsidising a poorly-planned retirement, including a closer family unit and the ability to help out with any grandchildren.
The reality is our ageing population is going to begin to drive some very interesting trends in the property market – and we would be wise to think how this will affect every participant in the market.
Paul Cahill, chief executive, Club Plus Super
Paul joined Club Plus Super in November 2007. He is the inaugural chief executive officer of Club Plus Superannuation and is the responsible officer for the fund. Previously, Paul was CEO of the Australian Meat Industry Superannuation Trust for 16 years.
With qualifications in both finance and commerce, in addition to holding an executive MBA, Paul’s focus at Club Plus Super is ensuring that all members receive first class returns, services, and superannuation and pension-related products.
