Earlier this month, the Grattan Institute released a detailed report hitting back at superannuation lobbyists who claim that many Australians will not retire with enough money.
The belief that “Australians don’t save enough for retirement…encouraged by the financial services industry fear factory, is mistaken”, the report states.
As a matter of fact, the Grattan Institute believes “the vast majority of retirees today and in future are likely to be financially comfortable” and will be less likely to “suffer financial stress” when compared to working-age Australians.
The report’s modelling shows this is because of the current combination of the age pension, compulsory super contributions, and non-super savings. Together they allow retirees to receive an “income of at least 91% of their pre-retirement income” even after inflation. This is well above the “70% benchmark endorsed by the OECD”.
There is however a caveat. The think tank’s report indicates that the current retirement income system falls short for senior citizens on a low income, who do not own homes, and are renting in the private market as a result. This problem will only worsen as home ownership among Australians decreases.
Because most Australians will be comfortable in retirement based on their model, the Melbourne based think tank therefore calls for the cancelation of the proposed increase in compulsory superannuation contributions from 9.5% to 12% by 2025. This could save the budget up to $2 billion a year.
Instead of the increase in compulsory superannuation, the report counters saying, the real policy should instead be a 40% increase in the rate of Commonwealth Rent Assistance, based on rent paid by the poorest 40%, this can be more than $1,400.
Apart from this, the report by the Grattan Institute also included several other recommendations, including reducing superannuation and age-based tax breaks to avert the retirement income system from becoming a burden on future budgets.
Despite the report and the findings of the model, the super industry stands by their proposed plans to increase superannuation contributions, with the chief executive of the Association of Superannuation Funds of Australia (ASFA), Dr Martin Fahy, stating: “Without superannuation, the reality is that retirement will be unaffordable in 30 years’ time…” and the burden of retirement will end up being placed on future taxpayers.
Moreover, Phil Gallagher, an industry super retirement income adviser, found the report made unrealistic assumptions and is not representative of many Australian workers.
According to Gallagher, the Grattan Institute’s report assumes all workers, “…can top up their super with extra-voluntary contributions…” which will result in contributions that are up to 50% higher than the basic superannuation guarantee. In reality, only 12.2% of employees with super make additional concessional contributions, he told the ABC.
Moreover, Gallagher said the model inaccurately assumes that everyone can work and make contributions continuously for 37 years, ignoring how many workers may need to take time off.
Lastly, Gallagher criticised the report for not taking into account changing standards of living “…assuming living standards in retirement shouldn’t keep pace with the rest of the community.”