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16 December 2020
One in six people will be aged over 65 years by 2050.
With the world’s population ageing quickly, it is natural to think about how pension systems around the world will cope, particularly in Australia.
Fortunately, Australia’s three-component retirement income system means our age-pension system is well-equipped to support older Australians now and well into the future.
Comparisons of age pensions around the world are generally made based on three key factors – adequacy, sustainability and integrity.
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The balancing act is tough, but essential for countries to get right. It is no use having an overly generous age pension if the current funding measures – typically tax revenue – are not adequate to maintain the system long-term.
Integrity is also critical, ensuring an age-pension system adequately protects a country’s older people.
Age pension rates in Australia are based on an income test, assets test and your relationship status. For example, the normal maximum fortnightly rates for an eligible single person are: Maximum basic rate $860.60; maximum pension supplement $69.60; energy supplement $14.10; total $944.30.
The pension supplement is an extra payment to help eligible retirees pay their utilities, phone, internet and medical expenses.
Similarly, the energy supplement is an additional payment which assists pensioners with their household energy costs.
There are two tests to determine age-pension eligibility in Australia – the income test and the asset test. The income test assesses all sources of you and your partner’s, if applicable, income, including financial assets. The asset test assesses the value of you and your partner’s assets excluding your principal home.
Australia is typically ranked among the best in the world for age pensions, trailing just behind the Netherlands and Denmark. In the Netherlands, for example, the maximum age pension is 50 percent of the minimum wage for couples, and 70 percent of the minimum wage for single people.
Denmark differs slightly, though their system is still adequate, providing pensioners with a minimum of 40 percent of a person’s average earnings along with support through the country’s universal healthcare and housing benefits.
Despite the Netherlands and Denmark consistently holding the top spots for their respective age-pension systems, Australia’s age pension comes quite close.
Australia is fortunate to have a stable, well-funded age-pension system, with the maximum age pension equating to about 60 percent of the national minimum wage.
When planning for your retirement, it is important to consider your desired retirement lifestyle and what this will cost.
Your ongoing costs in retirement will be impacted not only by your day-to-day living expenses, but also by the value of your assets and any outstanding debt, such as a mortgage.
Seeking tailored advice from a financial professional as you plan your retirement will ensure you have adequate income to fund your desired lifestyle.
• The information provided in this article is general in nature only and does not constitute personal financial advice.
The entire December 16, 2020 edition of The Weekly Advertiser is available online. READ IT HERE!