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Sources of Income: Retirement income
Lump sum payments received by recent retirees were generally too small to provide substantial income if invested.
Sources of income of retired people often change over the period of their retirement. In the past, there has been a tendency for retired people to move from private income sources to government benefits. Recent government initiatives have been directed towards reducing the reliance on government benefits of the future aged population.
In October 1992, the most common main source of income at retirement continued to be government pensions and benefits, although superannuation and part-time work had increased their shares slightly since 1986.
The age pension, a non-contributory, flat rate, means tested benefit, has been paid by the Federal government for almost 80 years and is considered to be the cornerstone of Australia's retirement income system. However, one of the most significant issues that has shaped recent government retirement income policy is our ageing population. As a result of lower birth rates, increases in life expectancy and the ageing of the 'baby boom' generation, the proportion of aged people in the population is expected to increase by 41% in the 48-year period 1993-2041 (see Projections of the aged population). This increase in the proportion of aged people implies an increase in the proportion of government funding directed to the aged pension system and a decrease in the proportion of tax payers contributing to government funds.
An important response to this issue by government has been legislation to improve superannuation coverage of the employed. The Superannuation Guarantee Act 1992 is seen as a means of reducing the overall cost of age pensions in the future as well as of increasing national savings.
Current patterns of income support from superannuation are related to the limited coverage and adequacy of superannuation schemes in the past. This is illustrated by the fact that in 1992, although 43% of retired people had had superannuation cover at retirement, only 11% stated that superannuation was their main source of income at retirement. This situation is slowly changing. Retired people in 1992 were more likely to have had superannuation cover on retirement than retired people in 1986 (43% compared to 35%), and the proportion with superannuation as a main source of income at retirement had increased slightly since 1986. For people aged 45 years and over in October 1992 who were currently working and who intended to retire, 33% expected superannuation to be their main source of income in retirement.
The proportion of retired people whose main source of income came from part-time work increased slightly from 3.8% in 1986 to 4.7% in 1992. This increase is associated with the general growth in part-time employment. (see Trends in part-time work).
Some 34% (593,000) of retired people had a different main source of income in October 1992 from when they retired. The change was predominantly one from non-government sources to government benefits. Among men, the major change was from depending on retirement schemes, investments or savings (39% at retirement and 28% by October 1992) while among women the change was mainly from being dependent on someone else's income (36% at retirement and 15% by October 1992). Such changes are related both to age at retirement and eligibility for the age pension.
MAIN SOURCE OF INCOME AT RETIREMENT
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 | November 1986 | November 1989 | October 1992 |
| Main source of income at retirement | % | % | % |
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| Government benefits(a) | 46.4 | 42.2 | 44.2 |
| Superannuation | 10.1 | 11.0 | 11.4 |
| Other retirement schemes, investments or savings | 18.9 | 20.0 | 19.1 |
| Part-time work | 3.8 | 4.2 | 4.7 |
| Someone else's income | 17.3 | 17.6 | 15.8 |
| Other(b) | 3.4 | 5.0 | 4.7 |
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| Total | 100.0 | 100.0 | 100.0 |
| | | |
| '000 | '000 | '000 |
| Total | 1,467.4 | 1,610.0 | 1,716.8 |
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(a) Sickness, special and other benefits not included in 1986 and 1989.
(b) Includes rent, farm, business, property, accumulated leave and compensation.
Source: Survey of Retirement and Retirement Intentions
RETIREMENT SCHEME(a) MEMBERSHIP
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| November 1986 | November 1989 | October 1992 |
| Retirement scheme membership at retirement | % | % | % |
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| Belonged to a retirement scheme | 39.0 | 41.8 | 47.0 |
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| 35.0 | 38.1 | 43.3 |
| Did not belong to a retirement scheme | 61.0 | 58.2 | 52.9 |
| | | |
| Total | 100.0 | 100.0 | 100.0 |
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(a) Includes superannuation schemes, life insurance policies or similar schemes that provide a financial benefit when a person leaves full-time work.
Source: Survey of Retirement and Retirement Intentions
Data sources
The Survey of Retirement and Retirement Intentions collects information from people aged 45 years and over who had retired or who intended to retire at some stage in the future. In this review, retired people are defined as those who ceased working full-time at age 45 years or more and who have no further intention of working full-time or of looking for full-time work.
For retired people, information was obtained about their main source of income at retirement i.e. immediately after ceasing full-time work, as well as at the time of the survey. People intending to retire were asked about their expected main source of income in retirement.
This survey did not collect information on the level of income received but has been used in preference to the 1990 Survey of Income & Housing Costs and Amenities because it specifically identified retired people.
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MAIN SOURCE OF INCOME OF RETIRED PEOPLE
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| | At retirement | | October 1992 |
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| Males | Females | Males | Females |
| Main source of income | % | % | % | % |
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| Government benefits | 49.9 | 35.6 | 64.1 | 62.0 |
| Retirement schemes, investments or savings | 38.5 | 18.1 | 27.9 | 14.2 |
| Rent, farm, business or property | 3.2 | 2.4 | 2.8 | 2.4 |
| Part-time work | 3.6 | 6.3 | 3.0 | 5.6 |
| Someone else's income | 2.6 | 36.2 | 1.5 | 15.0 |
| Other | 2.1 | 1.4 | 0.8 | 0.9 |
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| Total | 100.0 | 100.0 | 100.0 | 100.0 |
| | | | |
| '000 | '000 | '000 | '000 |
| Total | 1,042.8 | 674.0 | 1,042.8 | 674.0 |
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Source: Survey of Retirement and Retirement Intentions
Age at retirement
The main source of income at retirement reported by retired people varied distinctly with age at retirement. Early retirement is commonly thought of as taking place between the ages of 55 and 65 years for men and 55 and 60 years for women. This is related to the practice of making superannuation payouts available to policy holders at 55 years of age. Early retirement, if voluntary, must be funded by the individual. People who retired earlier than 55 years of age were more likely than older retirees to have done so involuntarily, particularly for reasons of ill health (72% of men and 26% of women aged 45-54 years), and were more likely to have retired on government benefits (for men) or someone else's income (for women).
Of men who had retired aged 45-54 years, 53% were dependent on a government benefit when they retired. The remaining 47% had had diverse main sources of income at retirement with retirement schemes, investments or savings being the most common (30%). Men who retired between the ages of 55 and 64 years were more likely to have had a non-government main source of income (58%).
Of women who had retired between the ages of 45 and 54 years, 50% were dependent on someone else's income at retirement. This proportion reduced to 39% for women who had retired aged 55-59 years.
RETIRED PEOPLE IN 1992 BY AGE AT RETIREMENT
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| | | Age group (years) | |
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| 45-54 | 55-59 or 64(a) | 60 or 65 & over(a) | Total |
| Main source of income at retirement | % | % | % | % |
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| Males | | | | |
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| 52.6 | 42.2 | 63.9 | 49.9 |
Retirement schemes, investments or savings
| 29.7 | 46.0 | 28.3 | 38.5 |
Rent, farm, business or property
| 3.6 | 2.9 | 3.6 | 3.2 |
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| 5.0 | 4.0 | 2.1 | 3.6 |
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| 5.6 | 2.6 | 1.1* | 2.6 |
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| 3.6 | 2.3 | 0.9* | 2.1 |
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| 100.0 | 100.0 | 100.0 | 100.0 |
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| Females | | | | |
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| 22.6 | 31.4 | 58.3 | 35.6 |
Retirement schemes, investments or savings
| 12.1 | 22.0 | 24.0 | 18.1 |
Rent, farm, business or property
| 3.3 | 2.1* | 1.5* | 2.4 |
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| 9.8 | 4.6 | 2.4 | 6.3 |
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| 50.3 | 38.8 | 13.3 | 36.2 |
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| 2.0 | 1.2* | 0.6* | 1.4 |
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| 100.0 | 100.0 | 100.0 | 100.0 |
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| '000 | '000 | '000 | '000 |
| Total males | 160.5 | 589.4 | 292.9 | 1,042.8 |
| Total females | 307.4 | 159.1 | 207.5 | 674.0 |
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(a) Males - 55-64 years and 65 years and over; females - 55-59 years and 60 years and over.
Source: Survey of Retirement and Retirement Intentions
Lump sum payments
Some 358,000 retirees had retired between 1988 and 1992 (recent retirees), of whom about 50% had received a lump sum payment from a retirement scheme. The majority of recent retirees were male (64%) and they were more likely to have belonged to a retirement scheme than female recent retirees (75% compared to 60%) and were more likely to have received a lump sum payment from the scheme (77% compared to 59%).
A large proportion of lump sum payments received by recent retirees were too small to provide substantial income if invested; 48% of payments were under $40,000. The majority (72%) of female recent retirees who received lump sums received sums under $40,000. The patterns of expenditure of lumpsum payments reflected the limited investment value of small payments. While 93% of payments over $200,000 were invested, 58% of sums less than $40,000 were invested. The expenditure of sums less than $40,000 included housing related expenditure (15%) and repaying debts (10%).
MAIN EXPENDITURE BY SIZE OF LUMP SUM RECEIVED IN 1988-92
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| Less than $40,000 | $40,000-$99,999 | $100,000-$199,999 | $200,000 and over |
| Main expenditure of lump sum | % | % | % | % |
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| Roll over, approved deposit fund, deferred annuity, purchased an immediate annuity | 26.5 | 44.6 | 72.3 | 73.1 |
| Invested money elsewhere | 32.0 | 29.3 | 18.7 | 20.0* |
| Paid off home, home improvements, bought new home | 15.1 | 17.9 | 6.9* | * * |
| Cleared other debts | 9.9 | * * | * * | * * |
| Other(a) | 16.6 | 6.7* | * * | * * |
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| Total | 100.0 | 100.0 | 100.0 | 100.0 |
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| '000 | '000 | '000 | '000 |
| Males | 47.7 | 31.8 | 21.2 | 17.8 |
| Females | 29.2 | 8.0 | 2.4* | 1.1* |
| Total | 76.9 | 39.8 | 23.6 | 18.8 |
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(a) Includes bought or paid off car and paid for holiday.
Source: Survey of Retirement and Retirement Intentions
Nature of occupancy
Outright home ownership allows the maintenance of a higher standard of living than is indicated by level of income alone, particularly for those with low incomes such as age pensioners. The majority of retired people (66%) owned their home outright at retirement, 16% were purchasing their home and 13% were renting accommodation. For 60% of both home owners and purchasers (at retirement) the main source of income at retirement was from non-government sources.
NATURE OF OCCUPANCY AT RETIREMENT OF RETIRED PEOPLE IN 1992
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| Owner | Purchaser | Public renter | Private renter | Other | Total |
| Main source of income at retirement | % | % | % | % | % | % |
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| Government benefits | 40.2 | 40.8 | 71.6 | 64.9 | 51.4 | 44.3 |
| Retirement schemes, investments or savings | 35.1 | 25.8 | 13.2 | 15.7 | 25.2 | 30.5 |
| Rent, farm, business, property | 3.8 | 1.9 | * * | * * | * * | 2.9 |
| Part-time work | 4.6 | 5.1 | 3.4* | 5.6 | 3.3* | 4.7 |
| Someone else's income | 14.4 | 24.6 | 10.8 | 11.9 | 16.5 | 15.8 |
| Other | 1.9 | 1.7 | * * | 1.8* | 2.6* | 1.8 |
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| Total | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 |
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| '000 | '000 | '000 | '000 | '000 | '000 |
| Total | 1,137.6 | 277.9 | 74.0 | 147.7 | 79.7 | 1,716.8 |
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Source: Survey of Retirement and Retirement Intentions
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