Using simulation techniques and current Indigenous Australian demographic and employment data, we estimate the superannuation balance of the typical Indigenous worker and compare this with the average non-Indigenous Australian. Our findings indicate that the retirement outcomes of Indigenous workers are approximately 27 per cent lower than the average non-Indigenous worker. In addition, only 20 per cent of full-time employed Indigenous workers accumulate enough superannuation savings to maintain a comfortable standard of living in retirement. The simulation results suggest that the differences in current earnings play an important role in retirement adequacy. *
This research on retirement adequacy for Indigenous workers indicates that Indigenous full-time workers will retire with approximately 27 per cent less in superannuation savings, on average, than non-Indigenous workers. That potentially translates to $165,000 less in superannuation for the average Indigenous worker at age 65.
Our study of the lifetime impact of earnings differences on retirement outcomes shines a spotlight on the extent to which disparity in income levels today results in a significant retirement wealth gap after a 40-year career.
The median Indigenous weekly income is currently around 23 per cent lower than the comparable non-Indigenous income (ABS Average Weekly Earnings 2015). The available statistics suggest that, overall, Aboriginal and Torres Strait Islanders experience lower levels of education, employment and income in comparison to non-Indigenous Australians. These factors indicate some of the key challenges faced by Indigenous workers who seek to accumulate long-term savings for their retirement.
A key concern raised by our research is that only one in five Indigenous Australians, compared with one in three non-Indigenous Australians, will be able to accumulate enough superannuation assets to allow them to maintain a satisfactory standard of living in their retirement. This is based on ASFA’s estimated income of $42,569 per annum which is required for a comfortable retirement for a single retiree.
The study assumes that participants contribute 9.5 per cent of their pre-tax income into their superannuation fund until retirement at age 65, and that current median income levels and historical asset returns continue over this investment period. Asset allocation is based on a typical default fund.
Our research indicates that while the mean superannuation balance for non-Indigenous Australians at retirement is 15 per cent lower than what is required for a comfortable retirement, the mean balance for Indigenous Australians is 46 per cent lower than this critical level. This means a significant proportion of Indigenous full-time workers will still need some form of government assistance to provide even a modest retirement income.
Figure 1: Lifetime retirement gap
Our modelling results reveal a significant retirement wealth gap of 27 per cent and 39 per cent for Indigenous males and females, respectively, when compared with the median non-Indigenous male worker (as shown in the following figure).
These results indicate that Indigenous males will retire with a superannuation balance that is very similar to that of the non-Indigenous female worker who faces a retirement gap of 28 per cent relative to that of the male non-Indigenous worker. Indigenous females will achieve the lowest average retirement outcomes and potentially face the biggest financial challenges in retirement.
This study is the first contribution in the literature to provide baseline estimates of the expected superannuation account balances of Indigenous Australian workers. The simulation evidence reveals a significant retirement gap of 27 per cent and 39 per cent for males and females, respectively, when compared to the median non-Indigenous male worker. Policies that can improve the education, employment and income outcomes of Indigenous Australians will translate directly into higher levels of superannuation savings for these individuals. In addition, policies aimed at lengthening the life expectancy of Indigenous Australians will extend the non-working phase of these individuals who are more likely to experience a shortened retirement.
* We gratefully acknowledge the Griffith Centre for Personal Finance and Superannuation (GCPFS) for financial assistance. All errors are our own.
This Working Paper was produced by the CSIRO-Monash Superannuation Research Cluster a collaboration between the CSIRO and Monash University, the University of Western Australia, Griffith University and the University of Warwick in the United Kingdom. In addition, the Cluster engages on an ongoing basis with a range of industry supporters, government agencies and industry peak bodies who assist in providing guidance and feedback to researchers, providing data, and in disseminating outcomes. The purpose of the Super Research Cluster is to examine issues pertaining to the future of Australia’s superannuation and retirement systems.