Academics and industry insiders have again urged the federal government to go ahead with the legislated increases in the superannuation guarantee (SG), arguing that most balances are inadequate to fund a decent retirement.
In a recent opinion piece for The Australian Financial Review, the minister responsible for superannuation, Senator Jane Hume, reignited the debate by arguing that many retirees were living too frugally and should increase their superannuation drawdowns to improve their retirement.
She cited findings from Treasury’s Retirement Income Review that noted if the “rate of employer contributions to super remained at 9.5 per cent and people made more efficient use of their retirement savings, many would have higher replacement rates than they would have with the SG at 12 per cent and drawing down their balances at the legislated minimum rate”.
But Treasury’s review also found that 60 per cent of Australians aged 60 to 64 have no more than $200,000 in their superannuation accounts.
David Knox, partner with super consultancy Mercer, said it was therefore understandable why people were not spending more of their super to fund a better retirement.
“People are risk averse because they are not sure how long they are going to live and they are not sure if the government is going to pay their aged care or health costs,” Dr Knox said.
“The age pension is a good alternative for low-income earners, but not for someone who has saved $500,000 [and is accustomed to a better lifestyle]”.
Superannuation savings have increased in recent years as more of the cohort who had compulsory super for most of their working lives move into retirement.
Those increased savings will enable future generations to have a better lifestyle if they spend it through retirement.
But the figures on overall super balances are misleading.
Women have significantly lower savings than men, and as previously mentioned, 60 per cent of people coming up to retirement have no more than $200,000 in their accounts.
Which is why many experts in the field are urging the government to stick with the legislated increases in the superannuation guarantee.
“What we already know is that unless we work longer, or contribute more, the superannuation balance of most people is likely to be inadequate to support them in retirement,” said Associate Professor Banita Bissoondoyal-Bheenick, from the school of Economics, Finance and Marketing at RMIT University.
“The Australian superannuation industry is a long way from being able to deliver retirement incomes that will offer retiring Australians a modest, let alone comfortable, income throughout their retirement,” she said.
“The retirement system faces a longevity problem, which has been heightened by the COVID early release measures, which was an immediate policy fix.
“But super is a long-term policy area, and so we need to go to 12 per cent for the super guarantee to address the retirement needs created by increased longevity.”
More guidance is needed
Ian Yates, CEO of aged lobby group COTA Australia, said the government needed to do a better job at explaining to retirees how much they could safely spend.
“There is a minimum drawdown rate for superannuation beginning at 4 per cent, then 5 per cent as you age. This has been halved during the pandemic [but will return to the full rate from July],” Mr Yates said.
“[But] the trouble with the minimum drawdown is that many people take that as a recommendation, not a minimum, and so they are living on less than they might be.”
Mr Yates said the government has pledged to introduce a Retirement Incomes Covenant [RIC], but noted “we have not seen legislation for it yet”.
“[The RIC] will give people guidance,” he said.
“It might say ‘if you have this much in super, then you can afford to spend so much per year.”
Mr Yates said the RIC would also make it incumbent on funds to provide this advice for their members, based on what they know about them.
As the above chart shows, retirees are currently making relatively modest superannuation withdrawals that could be ramped up, if they were more certain about their future.
Chant West research director Ian Fryer said many Australians needed more help building bigger superannuation balances.
“Lots of Australians are doing it tough in retirement, so the way to go is not to say, ‘OK, let’s hold the SG at 9.5 per cent’,” he said.
“Allowing it to go to 12 per cent would be a better option.”
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