Presentation to the 27th Colloquium on Pensions and Retirement Research, Sydney, Monday 2 December
Australia’s retirement income system is serving us well. The vast majority of retirees today and in future are likely to be financially comfortable. But worsening housing affordability presents a big challenges to our retirement incomes system going forward. In this presentation, Household Finances Program Director Brendan Coates shows why we should be worried.
While retirement incomes appear adequate for most Australians, senior Australians who rent in the private market are much more likely to suffer financial stress and poverty than homeowners. And this problem will get worse: on current trends home ownership for over-65s will decline, meaning many more retirees will rent privately in future. Consequently the real policy priority should be to boost the maximum rate of Commonwealth Rent Assistance by 40 per cent, at a cost of $1.3 billion a year, and benchmark it to the rents paid by low-income Australians.
But even those that do buy a home face challenges in retirement. House prices have risen sharply relative to household incomes, meaning Australians are spending a greater share of their lifetime earnings paying off their house. These trends drive the rising share of Australians approaching retirement with a mortgage, as well as those using their super to pay off the balance at retirement. Unless Australians are willing to draw on their growing home equity in retirement, they will be left with lower living standards while working, in retirement, or both.
Including the home in the Age Pension assets test should be a priority, while Government should explore ways to encourage retirees to tap into their substantial housing wealth to supplement their retirement incomes, or to help pay for aged care. Meanwhile housing will only become more affordable – to buy or rent — if we fix planning rules that prevent greater density in the inner and middle-ring suburbs of our major cities.