Scrapping planned increases in the Superannuation Guarantee that would lift it from the current 9.5 per cent to 12 per cent of wages would cut $89,589 from the average Australian retirement, according to new research.
Industry Super Australia’s (ISA) work found that across three average income levels, $50,000, $80,000 and $100,000, failing to increase the super guarantee contributions paid by employers from current levels would cost Australian retirees between 11.2 per cent and 12.1 per cent of final balances. Dollar balances would be cut by $56,393, $89,589 and $108,178 respectively.
Over the course of a retirement between ages 67 and 91 the reductions in real retirement spending would be between $28,310 and $34,566 as the chart shows. These figures are less than the final balance reductions because they include interactions between income from super and the age pension. ISA’s work was done in response to research released by the Grattan Institute, which claims Australians have enough super now and do not need the scheduled rises in the SG between 2021 and 2025.
It also calls for cuts in super contribution levels, the taxing of all fund income, the inclusion of the family home in the pension assets test, and the raising of the retirement age to 70.
Ian Fryer, research chief with superannuation watcher Chant West, said he did not think that a 9.5 per cent SG would be enough.
“Our own research indicates that a lot of people would struggle and that 9.5 per cent would not be enough,” Mr Fryer said.
Women and low-income workers would suffer
Association of Superannuation Funds of Australia CEO Martin Fahy took exception to the Grattan report, saying it would slash retirement prospects for lower income people by cutting their super.
“This report is about two Australias, where the well-heeled high earners have a fully funded retirement and the rest rely on the state,” Dr Fahy said.
Implementing it would prevent lower-income workers reaching reasonable levels of financial independence, he said.
“The Grattan Institute wants to dismantle our world-class retirement funding system and replace it with a model that has two-thirds of the population relying on the age pension,” Dr Fahy said.
“In a world where there are broken work patterns, and where women’s balances are 40 per cent less than men, Grattan wants to leave large parts of our society exposed to poverty in retirement.
“That would be a world where only the few can afford health insurance and where retirement is a dreary replay of the 1950s.”
Few can afford voluntary top-ups
Phil Gallagher, a retirement incomes expert with Industry Super Australia, said the Grattan modelling didn’t bear any relationship to the typical experience of those who rely on the SG by overestimating their financial capacity.
“Across all age groups just 12.2 per cent of employees with super make additional concessional contributions, but Grattan appear to have assumed that everyone does,” Mr Gallagher said.
“This loads up contributions and inflates retirement balances significantly. The methodology adopted appears to skew up contributions for lower earners in particular, resulting in retirement balance projections that are potentially inflated by as much as 45 per cent.”
Retirement is scary
Robert Curley, advocate with the Association of Independent Retirees, said the Grattan assumptions did not take into account the vagaries of life and their effects on finances.
“It’s OK to make those calculations, but things mightn’t turn out like that,” Mr Curley said.
“I’ve been retired 13 years and it still scares me. Even if you own a home you might have to spend $15,000 or $20,000 on maintenance and you could have to buy a car.”
He said often people have to spend significant amounts of money on retirement to set themselves up and “retirement incomes policy really needed a pragmatic view”.
Independent economist Saul Eslake said that he “actually found the Grattan argument reasonably persuasive” and that he had changed his opinion as a result of reading it.
The current SG would deliver adequate retirements for many and “the purpose of super is not to pass on big bequests or help the better off become even more well off”.
The New Daily is owned by Industry Super Holdings