Introducing the Grattan Retirement Incomes Model

by Brendan Coates


Presentation to the 26th Colloquium on Pensions and Retirement Research, UNSW Sydney, Monday 2 July

The Grattan Institute has developed a retirement incomes model to assess the adequacy of current retirement income policy settings, the Grattan Retirement Incomes Model. This presentation introduces the model, shows how it is constructed and evaluates the adequacy of retirement incomes in Australia.

Grattan modelling finds that Australia scores well on international benchmarks of retirement income adequacy. Most workers today can expect a wage-adjusted retirement income of at least 70 per cent of their pre-retirement income – the benchmark used by the Mercer Global Pension Index and endorsed by the OECD. Many low-income Australians will get a rise in pay when they retire, because the age pension and the income they get from compulsory retirement savings will be higher than the wage they received during their working life.

Retirees of today — many of whom didn’t benefit from compulsory super contributions for their whole working lives — already feel more comfortable financially than younger Australians. And pensioners who own their homes are less likely to suffer financial stress than working-age Australians.

The bipartisan plan to increase compulsory super contributions to 12 per cent should be abandoned. Lifting the compulsory Super Guarantee will reduce wages today and do little to boost the retirement incomes of many low-income workers. Scrapping the 12 per cent Super Guarantee would also save the Budget $2 billion a year now, and well into the future.

But our retirement incomes system doesn’t work for everyone. Senior Australians in the private rental market are at much greater risk of financial stress than homeowners, or those in public housing. Falling home ownership rates among younger generations mean many more retirees in future won’t own their homes. The rate of Rent Assistance therefore needs to increase to help low-income retirees that don’t own their home.