Blocking legislated rises in the superannuation guarantee to 12 per cent by July 2025 will cut low-income retirement balances by 15 per cent, new research has claimed.

AustralianSuper chair and former adviser to Paul Keating, Don Russell, told the Australian Institute of Superannuation Trustees conference on Monday that Australia’s most needy would bear the brunt of any delays to the SG increase.

“With the 12 per cent SG, a 39-year-old cleaner who has been working for about 10 years on a wage of $46,700, and with a super balance of $66,600 today, can look forward to a balance at age 67 of something in the order of $343,000,” Dr Russell said.

Meanwhile, a 40-year-old female security guard earning $49,700 a year today, and with $35,700 in their superannuation account, would have $256,000 in their super when they retire under a 12 per cent SG. 

But if the SG were to be held at the current 9.5 per cent as some Coalition MPs have called for, the cleaner’s retirement balance would be 15.2 per cent lower, at $291,000, and the security guard’s balance 13.3 per cent lower, at $222,000.

Although research from the Grattan Institute said “we don’t need the 12 per cent [SG], there is a sleight of hand with that analysis,” Dr Russell said.

“They focus on replacement income at retirement, but incomes have already fallen while people are in their 60s just before retirement.”

Although the age pension has increased by 42 per cent in real terms since the introduction of the SG in 1992, Dr Russell said people had ambitions beyond that.

“What our members are saying loud and clear is that they want a living standard that is not based on their replacement income just before they retired, but they want a retirement standard of living that is better than that,” he said.

Stay the course

Research produced by Dr Russell also highlighted the importance of setting and maintaining asset allocation choices in super, rather than changing allocations in response to market falls.

Source: AustralianSuper

“$100,000 invested in the [AustralianSuper’s] balanced option in 2000 would be worth $420,471 at the end of August this year,” he said.

And although the fund shed a lot of value at the beginning of the pandemic, it has gained 17.3 per cent since the market bottom on March 23.

“There’s a message here that says ‘don’t panic’,” Dr Russell said.

Source: AustralianSuper

The risks of switching comes from not knowing when the market will hit rock bottom, which means members typically move their assets into cash at the wrong time.

“Something like $5.8 billion switched out of the balanced fund into cash in March and only about $3 billion has switched back,” Dr Russell said.

“You can see that if you stayed in the balanced fund it peaked out at $109,000 [before the crash] and it has now returned to $104,000.”

The chart above shows that a person who had $100,000 invested in 2019, and switched to cash at the bottom of the COVID-19 slump, would be $15,265 or 14.6 per cent worse off than those who stayed with the balanced fund.

A person switching just before the bottom would be $11,358, or 11 per cent, worse off.

“Attempting to time the market and attempting to earn more return … is probably unwise for individuals,” Dr Russell said.

Young and angry

Economist Dr Mark Blyth from Brown University in the US told the conference there was a wave of anger being felt across the world, particularly by young people, driven by inequality and lack of security.

Comparing the lot of those under 25 in 1970 with the present, Dr Blyth said: “In the UK, inflation-adjusted salaries for those under 25 have barely budged, housing prices are up six times as a percentage of salary, and unemployment is twice the rate in the terrible 1970s.

“Then there was no student debt and now the average is £50,000.”

Dr Jim Stanford, director of the Centre for Future Work, told The New Daily that “Australians would have had some small increase in real incomes, but the housing situation would be worse than in the UK”.

“Australia has the highest level of precarious employment for young people in the developed world,” Dr Stanford said.

The New Daily is owned by Industry Super Holdings