Australians to Sacrifice Their Inheritance to Keep Parents Happy
ALMOST three quarters of Australians are willing to sacrifice their own inheritance so their parents and grandparents can enjoy the retirement they deserve, according to new research.
The surprising new findings, published in the 2023 CompliSpace Towards the Tipping Point in Aged Care report, suggest a significant shift in who Australians believe should pay for aged care. Over the past 20 years, almost $1.4 trillion has been gifted by Australians in inheritances, or about $67 billion a year.
At the same time, Australia spends about $30 billion per annum on aged care, which is only half of what comparable countries do, creating a $30 billion funding shortfall every year.
Two-thirds of funding is provided by taxpayers, rather than individuals, which is placing an increasing burden on the Australian Government Budget, particularly with the Baby Boomer generation about to enter aged care in large numbers for the first time.
CompliSpace CEO David Griffiths said with an ageing population, shrinking taxpayer base, and cost-of living crisis, scrutiny on older Australians who can afford to pay for their own care will intensify.
“Our research has confirmed, for the first time, that Australians want their parents and grandparents to spend their hard-earned savings on themselves, rather than passing it onto their Generation X children or Millennial grandchildren,” he said.
“Older Australians are being given the green light by their own families to spend their savings on their own care, rather than holding back and compromising their own qualify of life.
“Many Australians die with hundreds of thousands of dollars in savings that could have been spent on a more comfortable retirement while they were alive.
“The inescapable fact is that Australia is experiencing an aged care funding crisis and is reaching a tipping point. There are limits to how much taxpayers can provide to support older Australians who can fund their own care.
“The Federal Government needs to make this possible by enabling greater co-contribution models for those who can afford it, while funding one hundred per cent of care for those who can’t.”
According to the Productivity Commission, the average recipient of an inheritance receives about $125,000, is about 50 years old, close to peak earning capacity and established in a house. The Federal Government’s 2020 Retirement Income Review Report found that “most people die with the bulk of the wealth they had at retirement intact”
Pressure on the system is likely to grow as Australia’s population ages rapidly. More than 4.1 million Australians, or almost 16 per cent of the population, are currently over the age of 65.
By 2057, that will rise to 8.8 million, or 22 per cent of the population, and by 2097 it will reach 12.8 million people, or one in four Australians. The Aged Care Financing Authority (ACFA) has found that a sustainable aged care system can only be achieved with more co-contributions from older Australians who can afford to make them.
The Australian Government currently pays for two-thirds of aged care services in Australia, with co-contributions from older Australians making up the remainder. In 2020-2021 the federal government spent $23.6 billion on aged care.
Mr Griffiths said it was no longer possible for taxpayers to fund the care of wealthy older Australians who can afford to pay for that care themselves.
“It is time to empower Australians to make decisions about their own retirement. Co-contribution models are a way to both make that possible and to salvage aged care from becoming an unsustainable industry that fails older Australians.”
What do Australians believe?
- three-quarters (73%) of Australians are willing to forego an inheritance so their older family members can have the retirement they deserve.
- However, despite supporting their elders’ choice to spend everything on their own care, almost half of Australians are not willing to do the same for themselves, with 47% saying that they intend to leave an inheritance.
- More than a quarter (38%) of Australians agree that older people should sell their home if needed to fund their aged care.
- About half (51%) of Australians expect to receive an inheritance, and overwhelmingly they expect it from their parent/s (74%) and grandparents (19%).
- The value of expected inheritances ranges widely, from under $5,000 to over $1M. The largest cohort (27%) expects to receive between $50,000-$250,000, while 5% expect an inheritance between $1 million-$2 million.
What have Australians already received?
- The most common inheritance was in cash (41%), followed by property (28%), and personal possessions (11%).
- The value of received inheritances ranges widely. Thirty per cent received between $50,000-$250,000, 31% received between $5,000-$50,000 and 13% received $5,000 or less.
What are Australians planning with their own savings?
- Almost half of all Australians (47%) intend to leave an inheritance, mostly to a spouse or partner (36%), children (28%), or other family members (19%).
State-by-state comparison insights:
- New South Wales residents are the “windfall winners” – NSW families bequeath the most wealth. Nineteen per cent of NSW respondents who had received an inheritance assessed its value between $500-$2M, the highest proportion in the country.
- Most South Australians (80%) who have benefitted from an inheritance received it from their parents, by far the highest proportion in the country – and they are also the most likely to put their inheritance into superannuation (10%).
- Canberrans are the most likely to receive a cash inheritance (61%), and half of ACT respondents said they would leave their assets and savings to their partner (50%), in contrast to Tasmanians, 42% of whom would leave savings to their children before their partner (28%).
- Western Australians (84%) and Tasmanians (86%) are the most supportive nationally of their parents and / or grandparents using savings to fund retirement.
- Northern Territorians (66%) and Tasmanians (69%) have the highest level of expectation that older people will fund their own aged care.
- Almost half of Queenslanders waiting for an inheritance (47%) are expecting property
Inheritances are getting bigger in Australia. Older Australians drawdown the minimum on their superannuation. On average, their wealth goes to Australians who are in their mid-50s and own their property outright.
Australia currently contributes only 1.2 per cent of its gross domestic product (GDP) to long-term aged care, well below the global average of 2.5 per cent. But by 2066, almost a quarter of the Australian population will be over the age of 65.
The Royal Commission into Aged Care Quality and Safety found there were 4.2 working age (15–64 years) people for every Australian aged 65 years or over. By 2058, this will fall to only 3.1.
Currently, there are 277,000 paid residential aged care stuff across the country, and 222,500 older Australians receiving high-needs care in communal residential facilities. The demand for aged care services will only increase.
The Royal Commission into Aged Care Quality and Safety, which published its final report in 2021, added the weight of its authority to a conclusion that had been known to many within the industry for decades: a poorly funded industry compromises service delivery and results in substandard care.
The CompliSpace findings come as the Albanese government prepares to release its first federal budget. The CompliSpace report focuses on what Australians believe, expect, and receive when it comes to inheritances.