Australians already have more than enough money to retire on and the superannuation guarantee should not be lifted from the current 9.5 per cent to 12 per cent as planned, according to new research by the Grattan Institute.
In a view that stands starkly at odds with that expressed by financial services and retiree groups and the industry superannuation sector, Grattan Institute CEO John Daley says “the average worker today can expect a retirement income of at least 91 per cent of their pre-retirement income – well above the 70 per cent benchmark used in this report and endorsed by the OECD”.
“Many low-income Australians will get a rise in pay when they retire, because the age pension and the income they get from compulsory retirement savings will be higher than what they earn before retirement.”
Rather than boost super savings for all, Mr Daley said benefits should be targeted at those who need them.
“Senior Australians who rent in the private market are more likely to suffer financial stress than home owners.”
As a result he said “the real policy priority should be to boost the maximum rate of Commonwealth Rent Assistance by 40 per cent, or roughly $1400 a year for singles”.
Another area of reform called for would see the loosening of the pension assets test, which was tightened last year. The government slashed the taper rate for age pensioners from $1.50 to $3 for every $1000 in assets held above a threshold over which they lose the full pension.
That means, despite an increase in the full pension threshold, many people lost part pensions as the steeper taper rate sees the part pension asset limits reduced. Grattan Institute wants this remedied by reducing the taper rate to $2.25, which would partly restore the pre-2017 level.
However, it also called for the inclusion of the family home, above a threshold of about $500,000, into the assets test equation.
The generosity of the super savings system should be wound back with the tax-free status of earnings in retirement for balances below $1.6 million replaced with a 15 per cent tax rate.
Annual pre-tax contributions should be cut from the current $25,000 to $11,000, and post-tax contributions should be halved to $50,000. Lifetime post-tax contributions should be limited to $250,000.
However, Grattan’s recommendations drew fire from Industry Super Australia. Deputy CEO Matt Linden said the modelling Grattan relied upon to draw its conclusions was “not representative of the realities of working people”.
“The report relies on retirees being able to draw on a big chunk of savings outside superannuation. However, it’s certainly not the case for most people that they have significant savings outside super,” Mr Linden said.
Grattan also builds its case on people making significant contributions to their super above the superannuation guarantee payments employers make on their behalf.
“However, we know only a small proportion of people are able to do that,” Mr Linden said.
“Their general picture of retirement incomes is not grounded in reality.”
Grattan also said that during retirement most Australians maintain their nest eggs.
“Most retirees never spend a large part of the savings that they have on the day they retire,” the report said.
Mr Linden said scheduled increases in the superannuation guarantee would be important in ensuring Australians have adequate retirement savings in the future.
The New Daily is owned by Industry Super Holdings