The gross saving rate of households headed by persons aged over 65 rose from 1.8 per cent of disposable income in 2003-04 to 15.6 per cent in 2011-12.
The saving rate also increased significantly in the 55-64 age group, where there was a 14 percentage point increase. It seems likely the shift to higher saving among older households reflects an effort to rebuild wealth after the asset price losses incurred during the GFC.
We expect the GFC had a greater impact on older households given they have high wealth-to-income ratios and are closer to, or in, retirement. Hence they would have less time and less earning capacity to recoup GFC-induced losses.
In more recent years, some of these trends have been reversed, in part due to the impact of easier monetary policy. Since the end of 2011, when commodity prices peaked, the Reserve Bank has lowered the cash rate from 4.5 per cent to 2 per cent.
Rising prices have not been universal across asset classes however. With the exception of the Sydney and Melbourne housing markets, there has been only moderate house price growth in Australia over the last seven years. Also, after halving during the GFC, Australian equity prices have yet to regain their peak.
A CLOSER LOOK
But here again a closer look at the different age groups is instructive. For older households it is arguably actual income – reflected in yield, rather than capital values – that affects household behaviour.
Lower yields or expectations of lower yields mean households in or near retirement need a larger pool of assets in order to achieve the same income in retirement. Recent falls in yield may have played a more important role than asset prices in putting upward pressure on the saving rate for older households.
Our client liaison suggests uncertainty around the policy outlook with regards to retirement income and superannuation laws may also be contributing to the lower effectiveness of easy monetary policy.
Assets held in superannuation have risen sharply, to $1.9 trillion in recent years, and now account for around 20 per cent of total household assets, up from 14 per cent in 2003-04. Assets held in property and equities have fallen as a share of total assets, suggesting a move to take advantage of favourable taxation arrangements.
Unsurprisingly, superannuation holdings peak in the 55 to 64 age group in dollar terms. The rising importance of superannuation leaves a growing number of older households exposed to uncertainty surrounding superannuation and pension eligibility. These issues have been prominent in the political debate recently, with lower than expected government revenues focusing attention on where savings can be achieved. Clearly, less generous superannuation concessions are part of the debate.
This is an edited version of a research note compiled by ANZ economist Katie Hill, senior economist Jo Masters and co-head of Australian economics Cherelle Murphy.