FACING PLANNING FOR RETIREMENT TODAY, ‘GOVERNANCE & REFORMS:

THE WAY TO GO

Durban, South Africa – 18-20 August 2013

Dr Jack Jacoby

Trends

1. People are living longer2. People are working longer

PARTICIPATION RATES OF 50-64 YEAR-OLDS IN 1970 AND 2008

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Source: D’Addio et al. (2010) based on OECD Employment Database.1 2 http://dx.doi.org/10.1787/888932370303

EMPLOYMENT TO POPULATION RATIO, PEOPLE AGED 55-64 YEARS 1

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Source: OECD Factbook 2010 <www.oecd.org>

LABOUR FORCE PARTICIPATION OF PEOPLE

AGED 55 YEARS AND OVER - 1980-2010 AUSTRALIA 19

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Year to June.Source: ABS 1980-2010 Labour Force

Survey

Trends

1. People are living longer2. Older People are working longer3. Inflation and the cost of living longer is increasing – medical,

housing, services

ASFA RETIREMENT STANDARD (WEEKLY) Modest– single

Modest–

couple

Comfort-able

– single

Comfort-able

– couple

Housing - ongoing only $61.53 $59.06 $71.31 $82.67

Energy $41.42 $55.01 $42.03 $57.01

Food $74.23 $153.76 $106.04 $190.88

Clothing $17.49 $28.39 $37.86 $59.06

Household goods and services $25.95 $35.18 $72.99 $85.51

Health $38.06 $73.45 $73.34 $133.27

Transport $94.48 $97.15 $140.79 $143.47

Leisure $71.61 $106.69 $217.02 $297.40

Communications $9.45 $16.54 $25.97 $33.06

Total per week $434.22 $625.26 $789.53 $1,080.04

Total per year $22,641 $32,603 $41,169 $56,317

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Budgets for various households and living standards (March Quarter 2013)The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.

ASFA RETIREMENT STANDARD (WEEKLY) Modest– single

Modest–

couple

Comfort-able

– single

Comfort-able

– couple

Housing - ongoing only $61.53 $59.06 $71.31 $82.67

Energy $41.42 $55.01 $42.03 $57.01

Food $74.23 $153.76 $106.04 $190.88

Clothing $17.49 $28.39 $37.86 $59.06

Household goods and services $25.95 $35.18 $72.99 $85.51

Health $38.06 $73.45 $73.34 $133.27

Transport $94.48 $97.15 $140.79 $143.47

Leisure $71.61 $106.69 $217.02 $297.40

Communications $9.45 $16.54 $25.97 $33.06

Total per week $434.22 $625.26 $789.53 $1,080.04

Total per year $22,641 $32,603 $41,169 $56,317

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Budgets for various households and living standards (March Quarter 2013)The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.

Trends

1. People are living longer2. Older People are working longer3. Inflation and the cost of living longer is increasing – medical,

housing, services4. People are saving less

MEAN SUPERANNUATION BALANCES (2009-2010) AUSTRALIA

Has Super Age $

Men 15+ 71,645

Women 15+ 40,475

Men 60-64 198,23

5

Women 60-64 112,63

2

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HOLIDAY VERSUS RETIREMENT 19

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Source: HSBC

Trends

1.People are living longer2.Older People are working longer3. Inflation and the cost of living longer

is increasing – medical, housing, services

4.People are saving less5.Money saved during one’s working life

needs to fund a longer retirement

Trends

1. People are living longer2. Older People are working longer3. Inflation and the cost of living longer is increasing – medical,

housing, services4. People are saving less5. Money saved during one’s working life needs to fund a longer

retirement 6. During economic downturns, earnings from liquid investments fall

REQUIRED SAVINGS FOR RETIREMENT

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Monthly income

need

Savings Needed for 20 Years

Savings Needed for 30 Years

$1,000 $166,696 $212,150

$2,000 $333,392 $424,300

$3,000 $500,087 $636,450

$4,000 $666,783 $848,601

$5,000 $833,479 $1,060,751

$6,000 $1,000,175 $1,272,901

$7,000 $1,166,871 $1,485,051

$8,000 $1,333,567 $1,697,201

$9,000 $1,500,262 $1,909,351

$10,000 $1,666,958 $2,121,501

The above sums assume your portfolio will earn a 6 percent annualized return during the course of your retirement and endure

2 percent annual inflation erosion.

Source: U.S. Census Bureau, Saperston Companies, Bankrate. Date Verified: 5.8.2013

DEPOSIT INTEREST RATE 1991-2010 19

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Deposit interest rate (%) in AustraliaThe Deposit interest rate (%) in Australia was last reported at 4.21 in 2010, according to a World Bank report published in 2012. Deposit interest rate is the rate paid by commercial or similar banks for demand, time, or savings deposits.

Trends

1. People are living longer2. Older People are working longer3. Inflation and the cost of living longer is increasing – medical,

housing, services4. People are saving less5. Money saved during one’s working life needs to fund a longer

retirement 6. During economic downturns, earnings from liquid investments fall 7. People are having fewer children

TOTAL FERTILITY RATE, 1960-2011 (LIVE BIRTHS PER WOMAN) 1

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Trends

1. People are living longer2. Older People are working longer3. Inflation and the cost of living longer is increasing – medical,

housing, services4. People are saving less5. Money saved during one’s working life needs to fund a longer

retirement 6. During economic downturns, earnings from liquid investments fall 7. People are having fewer children8. In a globalised world, economic downturns are broader, deeper and

longer

A HISTORY OF MODERN CRISES1

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• Great Depression (1929 to late 1930s), stock market crash, banking collapse in the United States sparks a global downturn, including a second but not heavy downturn in the U.S., the Recession of 1937. Durations: 43 and 13 months respectively.

• Recession of (1945) Duration: 8 months• Recession of (1948 - 1949) Duration: 11 months• Post-Korean War Recession (1953 - 1954) - The Recession of 1953 was a demand-driven recession

due to poor government policies and high interest rates. Duration: 10 months• Recession of (1957 - 1958) Duration: 8 months• Recession of (1960 - 1961) Duration: 10 months• Bond Inversion of (1965 - 1967) no recession materialized• Recession of (1969 - 1970) Duration: 11 months• 1973 oil crisis (1973 - 1975) - a quadrupling of oil prices by OPEC coupled with high government

spending due to the Vietnam War leads to stagflation in the United States. Duration: 16 months• 1979 energy crisis - 1979 until 1980, the Iranian Revolution sharply increases the price of oil• Recession of (1981 - 1982) Duration: 16 months• Early 1980s recession - 1982 and 1983, caused by tight monetary policy in the U.S. to control inflation

and sharp correction to overproduction of the previous decade which had been masked by inflation• Great Commodities Depression - 1980 to 2000, general recession in commodity prices• Late 1980s recession - 1988 to 1992, collapse of junk bonds and a sharp stock crash in the United

States leads to a recession in much of the West• Japanese recession - 1991 to present, collapse of a real estate bubble and more fundamental

problems halts Japan's once astronomical growth• Asian financial crisis - 1997, a collapse of the Thai currency inflicts damage on many of the

economies of Asia• Early 2000s recession - 2001 to 2003: the collapse of the Dot Com Bubble, September 11th attacks

and accounting scandals contribute to a relatively mild contraction in the North American economy.

Trends

1. People are living longer2. Older People are working longer3. Inflation and the cost of living longer is increasing – medical,

housing, services4. People are saving less5. Money saved during one’s working life needs to fund a longer

retirement 6. During economic downturns, earnings from liquid investments fall 7. People are having fewer children8. In a globalised world, economic downturns are broader, deeper and

longer 9. The under-employment of our youth

YOUTH UNEMPLOYMENT RATES1

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Source: OECD

Trends

1. People are living longer2. Older People are working longer3. Inflation and the cost of living longer is increasing – medical,

housing, services4. People are saving less5. Money saved during one’s working life needs to fund a longer

retirement 6. During economic downturns, earnings from liquid investments fall 7. People are having fewer children8. In a globalised world, economic downturns are broader, deeper and

longer 9. The under-employment of our youth10. The falling relative proportion of tax generating workers

TAX BURDEN1

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OECD tax wedge changes 1

1. Single individual without children at the income level of the average worker.2. Includes payroll taxes.

Sources: country submissions, OECD Economic Outlook Volume 2012 (No. 92).

Trends

1. People are living longer2. Older People are working longer3. Inflation and the cost of living longer is increasing – medical,

housing, services4. People are saving less5. Money saved during one’s working life needs to fund a longer

retirement 6. During economic downturns, earnings from liquid investments fall 7. People are having fewer children8. In a globalised world, economic downturns are broader, deeper and

longer 9. The under-employment of our youth10. The falling relative proportion of tax generating workers

AUSTRALIA’S SUPERANNUATION TIMELINES• Late 1800 A limited number of private companies provide a form of superannuation for select employees.• Post 1945 Superannuation became more recognised but access limited to executive and public sector employees.• 1960s and 70s Government inquiries find s factors are hindering the ability of Australians to save for retirement.• 1983 Tax changes are introduced to encourage people to hold benefits in the super system until retirement.• 1985 The ACTU seeks a 3% employer superannuation contribution to be paid into an industry fund. • 1986 The Commission approves the ACTU's proposal. Superannuation coverage stands at around 40% of employees.• 1989 In the four years following the 1986 National Wage Case, super coverage increases rapidly to 79% of

employees.• 1991 Private sector super coverage reaches 68%, up from 32% in 1987.• 1992 Superannuation Guarantee (SG) introduced. Employers required to make tax-deductible superannuation

contributions on behalf of their employees. • 1995 Super coverage for women hits 85%, from 25% in 1983. Super fund assets grow from $40 billion to over $180

billion.• 1997 Legislation to give employees a choice of super fund is introduced. Over 90% of the workforce is covered by

super.• 1999 A Lost Members Register, maintained by the Australian Taxation Office (ATO) is established.• 2002/03 Superannuation employer contributions reach 9% of salary, after being phased in over a 10-year period.• 2005 Legislation to give employees a choice of super fund comes into effect on 1 July. • 2006/07 Sweeping changes are introduced to super including: abolition of tax on lump sums and pension payments

made to members over age 60, abolition of Reasonable Benefit Limits, new minimum standard rules for pensions and annuities, removal of compulsory cashing of superannuation benefits for those over age 65, introduction of penalty tax caps on the amount which may be contributed to super, extension of co-contribution scheme to the self-employed, and simplification of tax calculations through the introduction of streamlined components.

• 2009 Concessional contributions are limited to $25,000 per person per year, from 1 July. • 2012/13 Super contribution rebate for low income workers earning less than $37,000 a year commences 1/7/12.• 2013/14 SG contribution rate rises to 9.25%, rising incrementally to 12% by 1 July 2019. Employers to make SG

contributions for employees beyond age 70 if they are still employed from 1 July 2013 and onwards.

Trends

1. People are living longer2. Older People are working longer3. Inflation and the cost of living longer is increasing – medical,

housing, services4. People are saving less5. Money saved during one’s working life needs to fund a longer

retirement 6. During economic downturns, earnings from liquid investments fall 7. People are having fewer children8. In a globalised world, economic downturns are broader, deeper and

longer 9. The under-employment of our youth10. The falling relative proportion of tax generating workers11. Late entry into superannuation by the Baby Boomer generation12. Technology and the virtual workplace

Trends

1. People are living longer2. Older People are working longer3. Inflation and the cost of living longer is increasing – medical,

housing, services4. People are saving less5. Money saved during one’s working life needs to fund a longer

retirement 6. During economic downturns, earnings from liquid investments fall 7. People are having fewer children8. In a globalised world, economic downturns are broader, deeper and

longer 9. The under-employment of our youth10. The falling relative proportion of tax generating workers11. Late entry into superannuation by the Baby Boomer generation12. Technology and the virtual workplace13. Changing work emphasis from attendance to performance

Trends

1. People are living longer2. Older People are working longer3. Inflation and the cost of living longer is increasing – medical,

housing, services4. People are saving less5. Money saved during one’s working life needs to fund a longer

retirement 6. During economic downturns, earnings from liquid investments fall 7. People are having fewer children8. In a globalised world, economic downturns are broader, deeper and

longer 9. The under-employment of our youth10. The falling relative proportion of tax generating workers11. Late entry into superannuation by the Baby Boomer generation12. Technology and the virtual workplace13. Changing work emphasis from attendance to performance14. Lifetime career changes

STRATEGIES

• Strategy 1: Employment of mature workers

• Strategy 2: During employment, help all workers build additional interests and revenue sources

• Strategy 3: Establish mature networks

• Strategy 4: Mentoring

• Strategy 5: Education and literacy standards

• Strategy 6: Education of women

• Strategy 7: Get youth employed as soon as possible

• Strategy 8: Stop using the term ‘retirement’

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