HSBC has released a new report arguing that Australian retirees have been the hardest hit in the world by the Global Financial Crisis (GFC):
Retirees in Australia have been the hardest hit in the world by the Global Financial Crisis (GFC), according to HSBC’s latest Future of Retirement report. The research also found one in six Australians who are currently working feel they will be unable to ever retire, and more Australians in the future will opt for a phased retirement compared to the current generation of retirees.
The Future of Retirement: Life after Work?, based on responses from 16,000 people in 15 countries, including 1,000 within Australia, underlines the importance of preparing for retirement and how much the retirement landscape in Australia is changing.
According to the survey, 79% of Australian retirees reported an income fall upon retiring with 41% seeing it fall by half – nearly double the global average (21%) and ahead of other western markets including the US (16%) and the UK (24%).
Of the Australian retirees with a post retirement income fall, 59% attribute it to the GFC – nearly double the global average of 34% and more than any other country. Beyond the GFC, Australian retirees blame a fall in income to unexpected events or expenses such as children moving back home or health-related expenses (34%) as well as insufficient planning (32%)…
“Australians have felt the GFC acutely and for a prolonged period because of the strong links between our pension and superannuation systems and equity markets2 which saw more than 50% falls following the crisis.”
“Unfortunately, this means many Australians’ retirement plans have been disrupted by the GFC. It is a painful reminder of how we can all be blindsided by circumstances outside of our control and why it is important to provide a savings buffer for unforeseen events,” he said…
The report found one in six working age Australians believe they will never be in a financial position to fully retire, higher than the global average of 12% and slightly lower than the US and UK (18% and 19% respectively). Additionally, 59% of working Australians still feel they are currently inadequately preparing for retirement…
On average, Australians expect to fully retire at 64 (compared to the global average of 59), three years later than when their parents retired.
However, the survey found 52% of working Australians (42% globally) expect to move into semiretirement before full retirement compared to only 30% of current Australian retirees who went into semi-retirement first. This figure increases to 57% amongst 25-34 year olds.
Of those moving to semi-retirement, 52% are motivated by staying mentally and physically active with 30% saying they are financially unable to fully retire
On the face of it, HSBC’s claim that Australian retirees have been the hardest hit in the world by the GFC seems far fetched.
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A few months back, Australian National University’s Alan Tapper, Alan Fenna and John Phillimore released a fantastic research paper examining the extent to which welfare policies across the period 1984 to 2010 have favoured the elderly at the expense of the young. One of the paper’s key findings was that due to a substantial shift in government welfare towards the elderly, elderly households today are on average well off by comparison with younger households:
We might suppose that increasing support for the elderly is an expression of increased recognition of need. To test this claim we need to be able to rank ‘neediness’. This can be partly done in terms of ‘equivalent final incomes’… Table 6 shows the equivalent final incomes of the elderly and all households. Note that this table exaggerates the increase in EFI between the two surveys, because here the EFI for 2003–04 has not been adjusted by the CPI. The point of the comparison is not the relative change between 2003–04 and 2009–10 within each group, but the gains and losses of the different groups relative to each other in this period.
…the most interesting comparison is that with all households. Rapid gains to the elderly in this period have brought them close to the EFI for all households. The gap in 2003–04 stood at about 21 per cent (based on an estimate that the EFI for all elderly households was about 505). In 2009–10 it had fallen to only about five or six per cent (estimating that the elderly EFI was about 960)…
As Table 7 shows, wealthier households are older households. Net worth peaks at around age 60. A sharper picture is obtained if we take household size into account using equivalence scales. Here we have used the square root of household size (a method that approximates quite closely to the ‘OECD modified’ scale used by the ABS to calculate equivalent final incomes). The resulting ‘equivalent net worth’ indicates that even households aged 75 and over are one-third better off than the mean for all households, while households in the 65–74 age group are 60 per cent better off than the mean…
Given that equivalent final incomes for the elderly are now close to the average for all households, and that the net-worth distribution is skewed in favour of older households, we can reasonably infer that an integrated measure would show that households headed by persons 65 and over are better off than the average for all households under that age.
Further, the Australian Bureau of Statistics household net worth survey shows that the net worth of retirees has increased, albeit slowly, in the post-GFC period (see next chart).
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
