CANBERRA: Compulsory retirement saving is creating a “millionaire middle class” and helping Australia grow wealthier at a faster pace than the rest of the world, but the superannuation system needs reform to stem widening income inequality.
That is the view of Boston Consulting Group Australia head of financial services Andrew Dyer.
“Kids of baby boomers may wish to see more of their parent’s wealth gifted to them but this attitude is counterproductive and pandering to it risks creating an entitled class who are not motivated to work to create their own wealth,” Mr Dyer said.
A global Boston Consulting Group (BCG) report issued from New York last week showed private wealth in Australia grew by 16 per cent to $3.52 trillion in 2014, outpacing global growth of 12 per cent. It was the second consecutive year of strong growth in Australia, with total wealth over the past two years rising by $1.04 trillion, or $1.4 billion a day.
Mr Dyer said Australia’s compulsory superannuation savings regime deserved the bulk of the credit for the nation’s wealth boom as the baby boomer generation hits or approaches retirement age.
“What we are starting to see in Australia is the legacy of people being forced to save money for their retirement through superannuation for nearly 25 years and the impact of compound interest over that time. Our super system is working well at safeguarding some of people’s wealth for retirement, but there is definitely scope for the system to be further strengthened”.
Australia’s growing affluence is broadly based by international standards and characterised by the emergence of a new “millionaire middle class”, Mr Dyer said.
“Income inequality is rising across the world including here, but it is nowhere near as pronounced in Australia as in the United States or United Kingdom”.
The number of millionaire households in Australia increased by 18 per cent last calendar year to 215,000. But the rich are getting richer much quicker than average households.
Private wealth in households in the range $1 million to $5 million rose by 26 percent, significantly above the national increase of 16 per cent.
Mr Dyer supports the government’s plan to tighten the asset eligibility test for the age pension, a move designed to force retirees to draw more heavily on their superannuation to fund their income in retirement. “Hopefully the government’s planned changes to the pension test will prompt more spending and economic growth”.
But greater reforms across the retirement incomes system are needed, he said.
“It is important for the preservation of an egalitarian society that we look more closely at how to encourage people to spend their super rather than pass it on through inheritances”.
The BCG report forecasts a slight easing in the rate of wealth growth in Australia over the next five years, based on expectations of lower returns from equity and bond markets. However, private wealth is still expected to reach $4.9 trillion by 2019.
Under the methodology of the BCG survey, wealth is defined as total assets under management across all households, including cash and money market funds and listed securities held directly or indirectly. It excludes wealth in residences, owner-occupied homes or luxury goods.
