The financial struggle of retiring boomers: How can employers make a difference?

A significant portion of Australia's baby boomer generation is facing a stark reality: they are retiring with far less than what is required for a comfortable lifestyle. According to recent research from the Association of Superannuation Funds of Australia (ASFA), two-thirds of baby boomers leaving the workforce do not have enough pension savings to retire securely.

While Australia’s pension system, known as superannuation, is considered one of the strongest in the world, it has yet to fully mature for many retirees. Introduced in 1992, superannuation was made compulsory for all workers, initially requiring employers to contribute 3% of wages. Today, the employer contribution rate stands at 11%, set to increase to 12% in 2025. However, despite these gains, many Australians still fall short of the financial security needed for a comfortable retirement.

As of June 2022, the median pension balance for men aged 60-64 was A$205,385 (S$178,850), while for women of the same age, it was A$153,685. These figures are far below the A$690,000 for couples and A$595,000 for singles, considered the industry’s benchmark for a comfortable retirement. With an estimated 2.5 million Australians expected to retire within the next decade, the gap in retirement savings is a growing concern.

While there is optimism that future retirees will fare better—ASFA predicts that more than 50% of retirees will have adequate savings by 2050—the situation for today’s retirees is less encouraging. Poor investment returns in recent years, the gender pay gap, and financial illiteracy have all contributed to inadequate retirement savings.

What Can Businesses Do?

With so many Australians facing an uncertain financial future, businesses have a crucial role to play in helping employees better prepare for retirement. By offering strategic benefits and educational support, employers can mitigate the financial stress facing their workforce. Here are some ways businesses can help bridge the retirement savings gap:

1. Enhance Superannuation Contributions

Superannuation remains the primary source of retirement income for most Australians, but many are still falling short of the required savings.

Employers can contribute more than the mandatory 11% superannuation rate, offering to match additional contributions or provide salary sacrifice options. These measures can significantly bolster an employee’s retirement fund over time, particularly if started early in their career.

2. Financial Wellness Programs

Many employees lack the knowledge and tools needed to make sound financial decisions, exacerbating their shortfall in retirement savings.

Businesses can introduce financial wellness programs that offer personalized advice, seminars, and resources. These programs can cover topics such as budgeting, retirement planning, and understanding government benefits like the Age Pension. Empowering employees with financial literacy will allow them to make informed decisions about their superannuation and long-term savings.

3. Flexible Retirement Transition Plans

As Australians live longer, working beyond traditional retirement age is becoming more common. However, few have a clear pathway to ease into retirement.

Offer phased retirement programs that allow employees to gradually reduce their working hours as they approach retirement. This not only helps them adjust financially but also allows them to continue growing their superannuation balance.

4. Salary Sacrifice Schemes

Salary sacrificing enables employees to contribute more of their pre-tax income to their superannuation, increasing the compound growth of their savings.

Businesses can promote and facilitate salary sacrifice schemes, helping employees to understand the tax benefits and long-term advantages of contributing more to their superannuation. Employers can also make the process seamless by offering online tools or financial counseling to guide employees through the process.

5. Provide Long-Term Savings Plans

Many Australians are focused on short-term financial goals, leading to a lack of discipline in building long-term retirement savings.

Encourage long-term savings with employee share purchase plans, profit-sharing schemes, or corporate savings accounts that automatically divert a portion of an employee's salary into an investment or retirement fund. These initiatives can provide an additional income stream that supplements superannuation in retirement.

6. Conduct Retirement Planning Seminars and Workshops

A surprising number of employees do not fully understand how much money they will need to retire comfortably.

Organize regular seminars and workshops that focus on retirement strategies, investment options, and healthcare costs in retirement. These sessions can guide employees in estimating their future financial needs and how to reach them. By offering these resources, businesses can help employees develop a realistic and actionable retirement plan.

7. Promote Health and Well-Being Initiatives

Poor health often forces early retirement, leaving employees with fewer working years to accumulate superannuation and savings.

Promote workplace wellness programs that support physical and mental health, helping employees stay healthy and productive for longer. Initiatives such as subsidized gym memberships, wellness days, and preventive health screenings can reduce the risk of early retirement due to health issues, thus prolonging income-earning years.

8. Create Awareness Around Government Benefits and Support

Many employees are unaware of the government programs available to support retirees, such as the Age Pension or tax incentives for seniors.

Offer workshops or newsletters that inform employees about government benefits and how they can supplement their superannuation. By understanding what resources are available to them, employees can plan more effectively for retirement and avoid financial surprises.

9. Tailor Benefits for Older Workers

Older workers have different needs compared to their younger colleagues, particularly when it comes to healthcare and family responsibilities.

Provide benefits that cater specifically to the needs of older employees, such as health insurance plans designed for seniors, eldercare assistance, and additional paid leave for caregiving responsibilities. These benefits can reduce financial stress and allow older employees to focus on building their retirement savings.

10. Encourage Lifelong Learning and Skill Development

As Australians work longer, having up-to-date skills is essential for staying employable.

Promote lifelong learning and skill development through training programs and mentorship opportunities. By keeping older employees engaged and skilled, businesses can help them extend their careers, delaying retirement and allowing more time to save for the future.

Key Ways Businesses Can Help Employees Retire Comfortably

• Enhance superannuation contributions beyond the mandatory rate.

• Offer financial wellness programs to educate employees about saving and planning.

• Implement phased retirement plans to ease the transition into retirement.

• Promote salary sacrifice schemes to help employees boost their superannuation.

• Encourage long-term savings through employee share purchase plans or corporate savings programs.

• Conduct retirement planning seminars and workshops regularly.

• Promote health and well-being programs to ensure employees can work longer.

• Inform employees about government benefits and how they supplement retirement income.

• Tailor benefits for older workers, such as healthcare and caregiving leave.

• Encourage continuous learning to keep older employees employable longer.