Roundup: Ageing population promises inheritance goldmine for young Australians
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E-mail Xinhua, December 14, 2013
Australia's rapidly ageing population is posing something of a conundrum for policy-makers with a new HSBC report released Friday revealing Australians are expecting the inheritance jackpot higher than any other country.
HSBC's global Future of Retirement report will certainly be welcome news for state planners still reeling from the latest productivity assessment from the influential Productivity Commission (PC) which suggested that most Australians would need to work until they turn 70.
Just last month, the PC proposed lifting the pension age by five years to save taxpayers 150 billion Australian dollars in welfare and health spending as the baby boom generation hits retirement.
Retirees would also have to hand the local taxman a hefty chuck of the family home to help pay for aged care.
The status of Australia as the largest beneficiary of family inheritance flies in the face of strict PC calculations that taxes would need to rise 21 percent to pay for the extra health and aged care costs that have been born out by an ageing population that will see more 100-year-olds than babies in Australia by the turn of the next century.
According to HSBC, Australian retirees intend to pass on an inheritance of more than half a million dollars to their heirs, four times higher than the global average of 148,205 U.S. dollars.
Children born this year will live well into their 90s, according to the PC, and the total number of Aussies older than 75 will increase by 4 million - the population of Sydney (almost 25 percent of the nation) - over the next half-a-century.
Australian taxpayers whittled away 36 billion dollars last financial year on pensions for the nation's 2.4 million retirees, who receive 376 dollars a week for singles or 567 dollars a week for couples.
Graham Heunis, Head of Retail Banking and Wealth Management for HSBC in Australia, credits this to Australia's 22-year economic prosperity.
"Over the past decade Australian household wealth has grown 7. 6 percent per year making us one of the richest nations per capita globally allowing retirees to provide their children a significant financial legacy," he said.
The research also found that 69 percent of Australian retirees surveyed are planning to leave an inheritance, trumping retirees from other western countries like the UK (64 percent), Canada (57 percent) and the U.S. (56 percent).
Heunis said: "In markets like the UK and U.S., inheritance and estate tax may cost heirs upward of 40 percent of an inheritance, so retirees are inclined to give financial gifts throughout their life to pay for their childrens' major life events like an education, mortgage or marriage rather than a lump sum endowment."
"However, with no inheritance tax in Australia, it's no surprise the value and proportion of inheritance among Australian retirees is exponentially higher than the rest of the world," he said.
According to the report, half of working Australians say their future inheritance will partially finance their own retirement while 14 percent will rely largely on this income.
While two out of three Australians aged 65 or older rely on the aged pension, the impact of the global financial crisis wiped out a third of Australians' superannuation savings - pushing more people onto the old age pension.
Adding to the inheritance boom here is the goldmine of property that the next generation stands to inherit - some 400 billion Australian dollars worth of property over the next 15 years.
The PC has suggested tapping into the family home bonanza by making them hand the government half the yearly increase in their home's value.
The prospect of such an inheritance poses inherent risks according to the HSBC.
While a third of Aussie baby-boomers expect to spend all their cash and assets before they die, Australia will need to find an extra 6 percent of national income to support this population over the next 50 years.
"This highlights that working-age Australians need to continue preparing and saving to ensure their own financial security in retirement, and to treat any inheritance as a bonus," Huenis concluded. Endi
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