Changes in May's federal budget to restrict access to the age pension mean the average couple will need to stash away an extra $130,000 to afford a "comfortable" retirement, prompting renewed calls to lift the compulsory savings rate to 12 per cent sooner rather than later.
"Given the increasing level of super savings that the average Australian will require at retirement, there is a strong case to increase the compulsory rate of superannuation contributions to 12 per cent of wages as soon as possible," Association of Super Funds of Australia chief executive Pauline Vamos said.
Following a tightening of the age pension means test, the Association of Super Funds of Australia now estimates the average couple will need a super balance of $640,000 to fund a comfortable retirement, up from a previous $510,000 estimate.
For single people, the squeeze is even tighter. ASFA reckons an individual now needs to retire with $545,000 in super to live a good lifestyle in retirement, up $115,000 from the previous calculation of $430,000.
The June quarter update of the ASFA Retirement Standard Calculator was released on Tuesday.
Estimates could be too low
"While some individuals with relatively low retirement savings will receive a small increase in their age pension after 1 January 2017, others will receive a lower age pension, or none at all, until they run down their superannuation. As a result, many individuals and couples will require higher levels of private savings for a comfortable standard of living in retirement," Ms Vamos said.
ASFA calculates the average home-owning couple retiring at 65 will need an annual income of $58,784 to be "comfortable", which it defines as a lifestyle where two people could spend about $500 a week between them on food and leisure. A single person would need $42,861 in retirement income per year to live in a similar style.
To reach the more achievable goal of a modest retirement the same couple would need an annual retirement income of $34,051, allowing about $270 per week between them to spend on food and leisure. Singles need to be able to draw $23,662 a year for a modest retirement.
"If there are further increases to the eligibility age for the age pension beyond what is already legislated, or a lower indexation factor is applied to future increases in the pension rate, then those retirement savings targets will necessarily increase further".
Increases in the cost of living and life expectancy are also putting pressure on the adequacy of super balances.
Ms Vamos urged people to consider seeking financial advice to help them better plan for retirement and consider making additional voluntary contributions.
"Many individuals may want to consider making voluntary contributions. These are generally tax advantaged and the earlier you can put money away, the more you will benefit from the effects of compound interest".
Industry backs call to raise super guarantee
All sides of the super industry are rallying behind the push for the government to abandon its delays to planned increases in the superannuation guarantee from its current rate of 9.5 per cent to 12 per cent.
The Abbott government's decision to pause superannuation contributions at 9.5 per cent has wiped the equivalent of $20,000 from the retirement savings of every Australian, a Rice Warner report commissioned by the FSC showed.
While the Opposition has criticised the government for pushing the planned hike to 12 per cent back from 2019 to 2025 in response to budgetary pressures, Shadow Treasurer Chris Bowen refused to give a commitment that a future Labor government would return to its original timetable.
When the super guarantee was first introduced in 1992 it was expected to eventually rise to 15 per cent.
Read more: http://www.smh.com.au/business/the-economy/pension-changes-and-stagnant-savings-rate-leaves-retirees-130000-short-20150817-gj15m3.html#ixzz3j7vVpdxQ
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