LEIGH SALES, PRESENTER: You'd think that 20 years of compulsory superannuation might have solved the problem of how we'll fund Australia's growing generation of retirees. But it seems that's not the case. Economists are warning of a looming black hole, with many Australians unable to fund their retirement, leaving the Government to pick up the slack and deal with a massive budget blowout. That's prompting calls to raise the retirement age to 70 and ban lump sum superannuation payouts. Greg Hoy reports.

GREG HOY, REPORTER: The mid-week matinee of the latest stage musical in Melbourne is packed to the rafters are with retirees, many of them living the dream.

KATE CARR, RETIRED SOCIAL WORKER: The reality is it's fabulous, this retirement life. Oh, I hope it continues for a long, long time.

GREG HOY: And chances are it will, as life expectancy of older Australians rises rapidly with the wonders of modern medicine.

JOHN DALEY, CEO, GRATTAN INSTITUTE: If you were aged 65 in 1970, chances are you'd live about another 12 years. Today if you are aged 65, chances are you will live to 85.

GREG HOY: Question is, who will pay the extra living expenses, an increasing headache given the first of an army of 5.5 million Australians born in the baby boom post-World War II have only just started marching into retirement. And worse, as the great retirement boom begins, the workforce shrinks and life expectancy soars, experts say a gaping hole is emerging in the compulsory superannuation saving plan Australia likes to pride itself on.

JOHN DALEY: People can get access to their superannuation well before they hit pension age. And indeed at the moment, one third of all superannuation balances are being spent before people hit pension age.

GREG HOY: Many dispute this, like the National Seniors Council, which has 220,000 members.

MICHAEL O'NEILL, NATIONALS SENIORS COUNCIL: I think there's a range of rumours that are around about a large number of people who've allegedly taken their money in a lump sum, spent it and then gone back and lined up for the pension. There is no evidence of that at all.

GREG HOY: But Australia's accountants say there is, and the problem is real and growing, with many Australians living it up on debt as they approach the age they can cash in their superannuation.

PAUL DRUM, CPA AUSTRALIA: The group between 50 and 54 years of age have an average personal debt of about 94 per cent of personal debt to superannuation savings. They will have to go on the pension because they will have large personal debts that will need to be paid off.

GREG HOY: And that, according to research soon to be released by the Certified Practising Accountants Association is a very bad omen for the federal budget over the next decade.

PAUL DRUM: The budgetary implications of what we're finding are quite profound. The tax concession - the concessional treatment of superannuation contributions runs to the tune of about $30 billion per annum. Now that's the equivalent of an NBN per annum.

JOHN DALEY: What we need is a regime that one way or another encourages people to use their superannuation to look after themselves rather than starting to rely on the pension earlier.

GREG HOY: The solution, they say, is to stop the payment of lump sum super and switch instead to superannuation-funded pensions. Then to raise the pension age and the age you can access your super. The Grattan Institute believes that both should be 70 and within 10 years. Already the pension age is due to rise to 67 by 2023 and the age you can access your super to 60 soon after. Critics say it's just too slow. So what do seniors themselves think?

GAIL CHEESEMAN, SALES CONSULTANT: I'm working in a demanding, physical job and I'm in my mid-60s and I think that a lot of people wouldn't be capable of working till they're 70.

KATE CARR: If you work later then you get back some more respect for the older people. I encourage the idea because we're gonna be around for an awful long time and for a lot of people that can be very boring.

GREG HOY: What do you think of the call to raise the age that Australians are allowed to access their superannuation savings?

WOMAN: You think you've got money and you have got money, but to not be able to get it is just mean.

BRIAN HEWITT, SEMI-RETIRED DISABILITY TEACHER: Somebody who's, say, 60, 65, whatever, who finds themselves outta work, to say they can't take their own money and pay off that mortgage, "No, we'll put you onto a Centrelink unemployment benefit or something," seems to me totally stupid.

GREG HOY: As we talked to Australian seniors, it became very obvious that people feel very strongly about constant changes already being made to the superannuation system. But by far the most delicate issue it seems from our survey is this:

So is it fair as some suggest that lump sum superannuation payments should be prohibited?

MAN: I'd like to see the statistics on who's actually accessing their superannuation lump sum and spending it all. What is the lump sum that we're talking about?

JACQUELINE CARMODY, RETIRED NURSE: I've spent all mine. I didn't have a lot. I thought, "Oh, I'll cash in my superannuation," which was going backwards fast and I went overseas.

GREG HOY: And so, how do you manage?

JACQUELINE CARMODY: I've got my inheritance wisely invested and I'm on the old age pension. And I budget carefully.

AILEEN HEWITT, SEMI-RETIRED COMPUTER PROGRAMMER: I'm fed up with the situation where I'm compelled by the Government to put money into a super fund that is then managed by someone to gamble on the stock exchange.

GREG HOY: It is a political minefield in the making. The Certified Practising Accountants Association will release its report next Wednesday, which it says will silence the sceptics and detail the severe funding problem emerging in Australia's super system and the need for tough measures to fix it.

PAUL DRUM: Now a lot of investors won't be happy with that, but the fact of the matter is we've got a $30 billion black hole in our federal budget per annum now.

JOHN DALEY: If we don't, we will face a situation in which Commonwealth governments essentially have fewer resources. They will reduce pensions. They will have to reduce other services or they will have to very substantially increase taxes. There aren't really any other choices.

LEIGH SALES: Greg Hoy reporting.

EDITOR'S NOTE (27 SEPTEMBER): This story originally referred to the Chartered Accountants Association, this has been corrected to read the Certified Practising Accountants Association.