Boosting the superannuation guarantee [SG] payment to 12 per cent by 2025 will increase the retirement savings of the average worker by $69,000, a leading superannuation body has claimed.

The 12 per cent level would also deliver a 5 per cent, or $2050, rise in annual retirement income, said Martin Fahy, CEO of the Association of Superannuation Funds of Australia (ASFA).

The comments came hard on the heels of claims from the Grattan Institute that the legislated SG rise would cost the average worker $30,000 over their working life, or $810 a year.

Grattan has been a trenchant critic of boosting the SG, saying that Australians will have enough to live on under the current SG rate of 9.5 per cent.

Grattan claimed that boosting the SG will take $20 billion a year from workers’ pockets because it will hold down wages by the 2.5 per cent SG rise.

However, ASFA said Grattan’s assumption that not increasing the SG would deliver a 2.5 per cent wage increase to the average worker on $60,000 is misplaced and a “heroic assumption”.

A number of factors would mitigate against workers benefitting from a real income rise.

“In reality, the increase in personal tax, withdrawal of family tax benefits and childcare subsidies would erode most of the increase, leaving people no better off in working life and worse off in retirement,” Dr Fahy said. 

Contradictions

Grattan’s latest work contradicts earlier research that claimed rising superannuation levels would not reduce the government’s bill for the age pension.

But on Wednesday it said “despite the magic of compound returns, just about all of the extra income from a higher super balance at retirement would be offset by lower pension payments, due to the pension assets test”, said Industry Super Australia (ISA) acting chief executive Matthew Linden.

“One week they’re claiming an increase in super won’t reduce the age pension, the next they claim people will be worse off because they will miss out on the age pension if they retire with more money,” Mr Linden  said.

“Any attempt to wind back the proposed super increase or freeze it altogether would not only affect Australians’ quality of life at retirement, it would increase the burden of the Age Pension on the budget,” he said.

Retirement system a world leader

Moving to a 12 per cent SG was necessary to boost workers’ retirements and would not be a drain on the economy because of the efficiency of the Australian retirement system, said David Knox, partner with superannuation consultants Mercer.

“Australia is heading to having the lowest pension costs in the world, so [increasing the SG] would be a good outcome,” Mr Knox said.

Research from Rice Warner showed “the Age Pension was costing 2.6 per cent of GDP now and is heading for 2.5 per cent in 2038”. That reduction will come despite the ageing of the population.

Adding superannuation concessions to the cost of the pension adds about 1.8 per cent to the total costs of the retirement system.

However, increases to the costs of super “will save money on the Age Pension in the longer term. It’s an investment in the future,” Mr Knox told The New Daily.

The relative cost of the Australian retirement system can be seen from the chart above. While Australia spent about $88 billion, or 4.4 per cent of GDP on retirement incomes last year, most OECD countries spent far more, with the OECD average at 7.6 per cent in 2013.

There was little change in relative retirement spending since then.

Mr Knox said the efficiency of the Australian system could be improved if the pension assets test and superannuation system were better integrated.

The New Daily is owned by Industry Super Holdings