Noting that Australia scores well internationally when it comes to retirement income adequacy, Grattan Institute fellow Brendan Coates warned that the system isn’t working for everyone.

Speaking in Sydney this week, he said, “Senior Australians in the private rental market are at much greater risk of financial stress than homeowners, or those in public housing. Falling home ownership rates among younger generations mean many more retirees in future won’t own their homes.”

The Grattan Retirement Income Model (GRIM) projects the future retirement incomes of people who were 30 in 2015, factoring in wage deflation, non-super savings and retirees’ draw down behaviour. 

Mr Coates, together with Trent Wiltshire and CEO John Daley, said the retirement system can’t be about boosting inheritances, but does need to encourage saving, investing and working.

With this in mind, the GRIM looks beyond the ASFA comfortable retirement standard and includes non-super savings.

It observed that the average retirement income as a percentage of salaried income (replacement rate) was higher when adjusted for inflation, rather than adjusted for growth in community living standards and questioned if the right approach was somewhere in the middle.

It also noted that replacement rates were higher once non-super savings were included, with the trend growing more distinct as incomes drop.

Given these elements, Grattan predicts future replacement rates will meet the OECD’s 70 per cent replacement rate benchmark across all percentiles.

However, Grattan also recognised the difficulty pensioners who rent face, with 20 per cent of this cohort having to skip meals, cut out home heating or fall into arrears on utility bills.

The researchers found increasing the super guarantee would help wealthy retirees more, with retirement incomes for low-income earners “barely” increasing with an increase in the super guarantee to 12 per cent.

Instead, they proposed restoring the age pension assets test taper to $2.25 for every $1,000 in assets and an increase in the rate of rent assistance to assist renting pensioners.