Half of all people renting in retirement living in poverty
Mar 18, 2024 7:42:34 GMT 7
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Post by bear on Mar 18, 2024 7:42:34 GMT 7
It's a disturbing statistic: half of all people renting in retirement are living in poverty.
A generation of renters is staring down poverty in retirement unless something drastic changes
Politicians are all too aware that a metaphorical poverty freight train is coming for a generation of renters, but can a collision be avoided?
That's according to research from the Grattan Institute and the Australian National University.
Why would that be the case? It's pretty simple: the age pension assumes home ownership. So, if you add on even the cheapest rent, you need extra regular income to fund it.
That's where superannuation comes in.
Again we hit a problem because, analysts say, assuming many of us live to a ripe old age, renters will need a nest egg worth hundreds of thousands of dollars just to keep a roof over their head.
"Certainly we would expect the number of Australians living in poverty to rise substantially from where we are today as those rates of home ownership fall," says the Grattan Institute's economic policy program director, Brendan Coates.
He gave testimony at a Senate committee hearing this week about this critical issue.
Politicians are all too aware that a metaphorical poverty freight train is coming for a generation of renters, but can a collision be avoided?
The ends don't meet for renters in retirement
Let's start by nailing down the fundamental financial problem faced by many renters in retirement.
To do that we need to look at a retiree's main source of income and their biggest expense if they don't own a home: rent.
Let's also assume they have little or no superannuation.
"The typical low-income Australian — it's going to be low-income earners who are renting in retirement — will not have $300,000 in super [at retirement]," Brendan Coates says.
While the average super balance at retirement stands at roughly $340,000 for men and $261,000 for women, Grattan Institute research shows it's grossly inflated by the fact some people have very large superannuation balances.
"75 per cent of retired renters have total assets, including any car and personal effects, of less than $125,000," Brendan Coates says.
This means the age pension is the main source of income and rent is the biggest single expense.
The maximum age pension for a single is currently just under $30,000 per year.
This, Coates says, is designed to cover basic living expenses, not including rent.
So, let's add on a median level of rent which, according to CoreLogic, is just more than $31,000 per year.
You don't need to be a pure mathematician to see the ends don't meet here.
But it's a bit more complicated
But unsurprisingly, it's more complex than this.
ANU's Ben Phillips says age pensioners don't typically live in two-bedroom city apartments. "It would be a pretty unlikely scenario that you would be an age pensioner and be paying $600 per week in rent. That would be pretty unusual."
Superannuation drives wealth inequality
Despite working since her 16th birthday, Elaine retired with just $45,000 in superannuation. Research shows superannuation is the biggest driver of wealth inequality in Australia – and women have much less of it than men.
Age pensioners, Phillips says, also have significantly lower living expenses than working Australians.
So, right off the bat, we can knock an age pensioner's weekly costs down quite substantially.
But here's the problem. Poverty is not defined by household expenses, it's defined by income.
ACOSS and UNSW use two international poverty lines to measure poverty in Australia — 50 per cent of median income and 60 per cent of median income, whereby people living below these incomes are regarded as living in poverty.
For example, the median weekly income is roughly $1,300 —that means an annual salary of just under $70,000.
Halve this and you get $35,000, under which, many agree, an Australian is living in poverty.
The age pension comes close to matching this at just under $30,000.
To be clear, many believe the current level of the age pension puts older Australians under the poverty line.
Then there's the growing cost of housing This is where the alarm bells start ringing.
The age pension doesn't meet some international poverty standards.
In addition, rising property prices mean a growing cohort of low-income Australians will never own a home and, instead, rent in retirement.
To repeat myself, the age pension does not cater for the cost of renting.
So, let's do the maths.
Assuming low-income households don't achieve home ownership, they will need at least $100,000 in superannuation in retirement to bridge the income poverty gap ($35,000 minus $30,000) over a 20-year period post-retirement.
Then you need to add in the cost of housing.
"If you're thinking about younger Australians who are renting, the poorest 20 per cent of 25-to-44-year-olds have basically no superannuation," Coates says.
"And they are the group that is going to be renting in retirement because poorer Australians are those who are missing out on home ownership.
"You probably need to have a super balance of about $300,000 at retirement to be able to pay out rent of between $15,000 and $20,000 a year — which is what you would probably need to put a roof over your head in retirement as a single renter.
"That's on top of the age pension. They need the age pension just to live.
"That's what we see with home owners — the age pension is enough for people to get by as long as they own their own home.
"But you need another $300,000 in super if you're going to be able to afford a very cheap rental in one of Australians major cities and even that's a stretch, particularly for somewhere like Sydney.
"So the typical retired renter will not have the super balance needed to offset the fact they don't own their own home."
Rent assistance doesn't go far enough
Commonwealth Rent Assistance (CRA) is specifically designed to assist those on pensions who either choose not to own a home or can't.
ANU research shows the median rent paid by an age pensioner on CRA (309,000 of them) is $448 per fortnight.
In round terms that's roughly $12,000 per year.
That's a significant amount of help.
But the Grattan Institute, the ANU and the Australian Council of Social Services say it needs to rise by 20 to 40 per cent more to keep renters at or above the poverty line.
To put it another way, in theory, CRA would need to rise to completely cover the cost of the cheapest rentals to help aged pensioners keep a roof over their heads.
The ABC contacted the minister for families and social services, Amanda Rishworth, to ask if a substantial increase in rent assistance — as much as 40 per cent — was on the government's agenda.
In a statement, she said: "The best solution over the longer-term is to increase housing supply, and that has been a key focus of our government."
And just on that, the minister for housing, Julie Collins, told the ABC the government has "already committed funding of more than $25 billion in new housing investments over the next decade — commitments that are accompanied by real progress on renters' rights".
"We also want to help more renters become home owners through our Help to Buy shared equity scheme, which will bring home ownership back into reach for 40,000 Australian households.
"It has the backing of housing experts, who have highlighted how it could assist older renters into the security of home ownership."
The chief executive of the Australian Council of Social Service, Cassandra Goldie, says a suite of measures are needed, including build-to-rent properties, more social and public housing, as well as tackling property ownership tax concessions.
A wave of renters heading for poverty
Let's finish where we began.
We know half of retired renters are now living in poverty.
The experts worry this number will increase substantially in coming years as housing becomes increasingly unaffordable, notwithstanding successive government policy action.
Five things I wish I knew about super when I started working
There are benefits to paying timely attention to your super early in your working life to get the most from this publicly mandated form of financial self-discipline.
"We expect the number of retired renters to nearly double over the course of the next 30 years," Coates says.
But we're not talking about millions of households.
A third of households own their home outright, and another third will likely do so by the time they retire.
This leaves many Australians well placed financially in retirement.
But you're still left with a third of households who are currently renting — roughly 7.5 million Australians.
These 7.5 million Australians will, experts forecast, need a superannuation balance of at least $300,000 at retirement to avoid an estimated 20 years of poverty.
Outside of government support, avoiding the freight train requires a significant improvement in housing affordability for younger Australians or mechanisms to ensure low-income earners achieve substantially higher superannuation balances in retirement.
www.abc.net.au/news/2024-03-16/generation-of-renters-risk-poverty-in-retirement/103592710?utm_source=abc_news_web&utm_medium=content_shared&utm_campaign=abc_news_web&fbclid=IwAR2ziksanauQIB5FuHPY4xRasyHdZ2fNnlimRRW-49-Q7rwx2ltrM9yc2yM
A generation of renters is staring down poverty in retirement unless something drastic changes
Politicians are all too aware that a metaphorical poverty freight train is coming for a generation of renters, but can a collision be avoided?
That's according to research from the Grattan Institute and the Australian National University.
Why would that be the case? It's pretty simple: the age pension assumes home ownership. So, if you add on even the cheapest rent, you need extra regular income to fund it.
That's where superannuation comes in.
Again we hit a problem because, analysts say, assuming many of us live to a ripe old age, renters will need a nest egg worth hundreds of thousands of dollars just to keep a roof over their head.
"Certainly we would expect the number of Australians living in poverty to rise substantially from where we are today as those rates of home ownership fall," says the Grattan Institute's economic policy program director, Brendan Coates.
He gave testimony at a Senate committee hearing this week about this critical issue.
Politicians are all too aware that a metaphorical poverty freight train is coming for a generation of renters, but can a collision be avoided?
The ends don't meet for renters in retirement
Let's start by nailing down the fundamental financial problem faced by many renters in retirement.
To do that we need to look at a retiree's main source of income and their biggest expense if they don't own a home: rent.
Let's also assume they have little or no superannuation.
"The typical low-income Australian — it's going to be low-income earners who are renting in retirement — will not have $300,000 in super [at retirement]," Brendan Coates says.
While the average super balance at retirement stands at roughly $340,000 for men and $261,000 for women, Grattan Institute research shows it's grossly inflated by the fact some people have very large superannuation balances.
"75 per cent of retired renters have total assets, including any car and personal effects, of less than $125,000," Brendan Coates says.
This means the age pension is the main source of income and rent is the biggest single expense.
The maximum age pension for a single is currently just under $30,000 per year.
This, Coates says, is designed to cover basic living expenses, not including rent.
So, let's add on a median level of rent which, according to CoreLogic, is just more than $31,000 per year.
You don't need to be a pure mathematician to see the ends don't meet here.
But it's a bit more complicated
But unsurprisingly, it's more complex than this.
ANU's Ben Phillips says age pensioners don't typically live in two-bedroom city apartments. "It would be a pretty unlikely scenario that you would be an age pensioner and be paying $600 per week in rent. That would be pretty unusual."
Superannuation drives wealth inequality
Despite working since her 16th birthday, Elaine retired with just $45,000 in superannuation. Research shows superannuation is the biggest driver of wealth inequality in Australia – and women have much less of it than men.
Age pensioners, Phillips says, also have significantly lower living expenses than working Australians.
So, right off the bat, we can knock an age pensioner's weekly costs down quite substantially.
But here's the problem. Poverty is not defined by household expenses, it's defined by income.
ACOSS and UNSW use two international poverty lines to measure poverty in Australia — 50 per cent of median income and 60 per cent of median income, whereby people living below these incomes are regarded as living in poverty.
For example, the median weekly income is roughly $1,300 —that means an annual salary of just under $70,000.
Halve this and you get $35,000, under which, many agree, an Australian is living in poverty.
The age pension comes close to matching this at just under $30,000.
To be clear, many believe the current level of the age pension puts older Australians under the poverty line.
Then there's the growing cost of housing This is where the alarm bells start ringing.
The age pension doesn't meet some international poverty standards.
In addition, rising property prices mean a growing cohort of low-income Australians will never own a home and, instead, rent in retirement.
To repeat myself, the age pension does not cater for the cost of renting.
So, let's do the maths.
Assuming low-income households don't achieve home ownership, they will need at least $100,000 in superannuation in retirement to bridge the income poverty gap ($35,000 minus $30,000) over a 20-year period post-retirement.
Then you need to add in the cost of housing.
"If you're thinking about younger Australians who are renting, the poorest 20 per cent of 25-to-44-year-olds have basically no superannuation," Coates says.
"And they are the group that is going to be renting in retirement because poorer Australians are those who are missing out on home ownership.
"You probably need to have a super balance of about $300,000 at retirement to be able to pay out rent of between $15,000 and $20,000 a year — which is what you would probably need to put a roof over your head in retirement as a single renter.
"That's on top of the age pension. They need the age pension just to live.
"That's what we see with home owners — the age pension is enough for people to get by as long as they own their own home.
"But you need another $300,000 in super if you're going to be able to afford a very cheap rental in one of Australians major cities and even that's a stretch, particularly for somewhere like Sydney.
"So the typical retired renter will not have the super balance needed to offset the fact they don't own their own home."
Rent assistance doesn't go far enough
Commonwealth Rent Assistance (CRA) is specifically designed to assist those on pensions who either choose not to own a home or can't.
ANU research shows the median rent paid by an age pensioner on CRA (309,000 of them) is $448 per fortnight.
In round terms that's roughly $12,000 per year.
That's a significant amount of help.
But the Grattan Institute, the ANU and the Australian Council of Social Services say it needs to rise by 20 to 40 per cent more to keep renters at or above the poverty line.
To put it another way, in theory, CRA would need to rise to completely cover the cost of the cheapest rentals to help aged pensioners keep a roof over their heads.
The ABC contacted the minister for families and social services, Amanda Rishworth, to ask if a substantial increase in rent assistance — as much as 40 per cent — was on the government's agenda.
In a statement, she said: "The best solution over the longer-term is to increase housing supply, and that has been a key focus of our government."
And just on that, the minister for housing, Julie Collins, told the ABC the government has "already committed funding of more than $25 billion in new housing investments over the next decade — commitments that are accompanied by real progress on renters' rights".
"We also want to help more renters become home owners through our Help to Buy shared equity scheme, which will bring home ownership back into reach for 40,000 Australian households.
"It has the backing of housing experts, who have highlighted how it could assist older renters into the security of home ownership."
The chief executive of the Australian Council of Social Service, Cassandra Goldie, says a suite of measures are needed, including build-to-rent properties, more social and public housing, as well as tackling property ownership tax concessions.
A wave of renters heading for poverty
Let's finish where we began.
We know half of retired renters are now living in poverty.
The experts worry this number will increase substantially in coming years as housing becomes increasingly unaffordable, notwithstanding successive government policy action.
Five things I wish I knew about super when I started working
There are benefits to paying timely attention to your super early in your working life to get the most from this publicly mandated form of financial self-discipline.
"We expect the number of retired renters to nearly double over the course of the next 30 years," Coates says.
But we're not talking about millions of households.
A third of households own their home outright, and another third will likely do so by the time they retire.
This leaves many Australians well placed financially in retirement.
But you're still left with a third of households who are currently renting — roughly 7.5 million Australians.
These 7.5 million Australians will, experts forecast, need a superannuation balance of at least $300,000 at retirement to avoid an estimated 20 years of poverty.
Outside of government support, avoiding the freight train requires a significant improvement in housing affordability for younger Australians or mechanisms to ensure low-income earners achieve substantially higher superannuation balances in retirement.
www.abc.net.au/news/2024-03-16/generation-of-renters-risk-poverty-in-retirement/103592710?utm_source=abc_news_web&utm_medium=content_shared&utm_campaign=abc_news_web&fbclid=IwAR2ziksanauQIB5FuHPY4xRasyHdZ2fNnlimRRW-49-Q7rwx2ltrM9yc2yM
