baby boomers in for 'tough retirement'

Baby boomers in for 'tough retirement'
April 5, 2006 - 4:19PM

Australia's baby boomers have not saved enough to fund the lifestyles they now enjoy into their retirement, a wealth management leader has warned.

Les Owen, who heads Axa Asia Pacific Holdings Ltd, estimates that on average the potential gap between the level of retirement savings and the amount needed to deliver expected living standards is $93,000 per person, or $452 billion in total.

"People are not saving anything like enough to meet their aspirations in retirement," Mr Owen told the Melbourne Financial Services Symposium.

"Most Australians are chronically under-saved and under-invested and the baby boomers now entering retirement face a drastic drop in their living standards."

He said the shift to consumerism from the thrift of their parents has created an "I consume, therefore I am" culture among baby boomers which was hostile to saving.

In 2002 there were more than five people in work supporting every person over 65 but by 2042 there will only be 2.5 people of working age supporting each one over 65.

To preserve today's average living standards, productivity of the working population would have to nearly double with all of that extra productivity handed over to the retirees - an unlikely scenario.

Mr Owen said Australia needs a tax system with a strategy to encourage savings and investments in assets that support increased productivity and GDP growth.

He said superannuation contributions should be treated as deferred pay and be fully deductible up to a prescribed level.

There should be no tax on investment income in the roll-up to the period prior to the benefits being drawn and benefits should largely be taken as income through retirement, and taxed as earned income, he said.

"We need a tax system....to encourage taking superannuation as pensions and income streams rather lump sums," Mr Owen said.