Super plan could raise pensions

Labor’s plan to support increases in superannuation contributions to 12 per cent could have a welcome side effect for age pensioners.

Apart from reducing future reliance on the Age Pension for hundreds of thousands of Australians, increasing the compulsory Superannuation Guarantee (SG) could also lead to an increase in the base rate of the Age Pension.

Federal shadow treasurer Chris Bowen said this week that Labor would follow through on legislated super increases from 9.5 per cent to 12 per cent by 2025. The increases will start in July 2021 with 0.5 per cent increases each year to 2025.

“Let me make it clear that the Labor Party does not regard a 9.5 per cent super guarantee as providing adequacy,” said Mr Bowen.

However, some critics doubt whether the increase is necessary. Recent Treasury modelling showed that the Age Pension is set to cost the nation less than previously thought. The share of GDP spent on the Age Pension will fall to 2.5 per cent by 2038, which is “significantly lower” than previous estimates.

Instead of freezing or scrapping planned increases to the SG, Labor sees the modelling as proof the system works and wants to make it even more effective.

Association of Superannuation Funds of Australia (ASFA) chief executive Dr Martin Fahy agrees with Labor’s plan.

“What that [Treasury retirement income] report appeared to be saying was that the burden of the Age Pension continues to decline, and so the previous Treasury forecasts have been shown to probably be high,” said Dr Fahy.

“That creates a very strong case for saying that superannuation is working, and that by going to 12 per cent as is legislated, it will continue to work, in that people will continue to retire with higher retirement balances, the burden of the Age Pension will continue to fall, and we’ll be able to therefore pay out higher state pensions to those who deserve it and need it.”

Critics of the increase say it will cause problems for low-income workers and that only the wealthy will benefit.

“What concerns us more is that people on very low incomes, forcing them to save 15 per cent of their income might make their life now very difficult because they have to pay their bills and pay mortgages as well,” said Combined Pensioners & Superannuants Association policy director Paul Versteege.

“We accept that if you want to be self-sufficient in retirement, you need to make a higher contribution than the 9.5 per cent that applies at the moment, but as I said, we can see the downside of increasing that compulsory contribution as well.”

However, Industry Super Australia (ISA) deputy chief economist Matt Linden believes increasing the SG will benefit lower income earners.

“It’s particularly important for lower and middle-income workers, because that’s a group who are often not making additional savings,” said Mr Linden.

Dr Fahy agrees: “The beauty of the super system is that everyone has the aspiration to be self-funded, and by going to 12 per cent it means even those on the average industrial income can look forward to having a comfortable and dignified retirement.”

Read more at The New Daily

Do you think lifting the SG could leads to increases in the pension base rate? Who do you think would benefit most from such a plan?

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Age Pension increases March 2019
Election 2019 increase the pension

Written by Leon Della Bosca

Publisher of YourLifeChoices – Australia's most-trusted and longest-running retirement website. A trusted voice on Australia's retirement landscape, including retirement income and planning, government entitlements, lifestyle and news and information relevant to Australians over 50. Leon has worked in publishing for more than 25 years and is also a travel writer and editor, graphic designer and photographer.

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