Missing the point on super

The Grattan Institute is calling on the Government to rethink the increasing of compulsory superannuation contributions to 12 per cent, with an argument that, by making the recommended 9.5 per cent contributions, future retirees will be more comfortable in retirement at the expense of lower living standards during their working lives.

An article penned by the Grattan Institute’s Brendan Coates and John Daley claims that the Government’s proposed objective “to provide income in retirement to supplement or substitute the Age Pension” implies that super should not “aim to provide limitless support for savings that increase retirement incomes”.

The Grattan Institute suggests that these incomes in retirement should be balanced against better living conditions throughout a person’s working life.

The report states that, if a median-income earner works for 40 years and has the 9.5 compulsory superannuation contributions made, the average Australian would have a retirement income equal to around 80 per cent of their working wage. This means that many workers who have the benefit of a full working life of compulsory super contributions could enjoy a higher standard of living when they retire than they did during their days of employment.

The report’s final assessment is that lifting the super guarantee to 12 per cent would not only decrease the quality of life for many working Australians, but also make it more difficult for them to access the property market. This would mean that more future retirees would remain as renters rather than owning their own homes, need more fluid income in retirement and, possibly, reliance on the Age Pension just to have a roof over their heads.

Read more at grattan.edu.au

Opinion: Is it time to get real about super?

While the Grattan Institute makes a valid argument for keeping compulsory super contributions at 9.5 per cent, if Australians want to live the retirement to which they aspire, then there remains an argument for raising compulsory contributions to 12 per cent.

It’s worth remembering that when super guarantee contributions (SGC) were introduced, it was a trade-off by unions in return for not taking wage increases. The SGC is paid by the employer, not the employee, so why would the Grattan Institute suggest that this decreases the individual’s quality of life?

The Association of Superannuation Funds of Australia (ASFA) states that to live a comfortable retirement, a couple requires an income of $59,619 a year. Industry Super Australia recommends that a couple needs a joint balance of $775,628 to live comfortably.

YourLifeChoices Insights Survey 2017 of 6732 Australians shows that, to live a ‘reasonable’ lifestyle in retirement, 11.65 per cent feel that $20,000 to $30,000 will be sufficient, with most of those surveyed (68.32) saying that $30,000 to $60,000 will be adequate.

If Australians who retire at age 65 are expected to live for up to 22 years in retirement at just the base level of what our members deem a ‘reasonable’ manner, it will set them back around $440,000.

Yet only 27.58 per cent of our survey respondents have enough to fully fund that type of retirement (not accounting for investment returns).

And remember, that’s at just $20,000 per year – around the ASFA-recommended income for a ‘modest’ lifestyle.

Our research also shows that just under nine per cent of our respondents have the required amount to live what Industry Super deems a ‘comfortable’ retirement.

Of the 2629 members who are aged under 65, 19 per cent have less than $100,000 in super. Of these, 9 per cent say they’d need $20,000 to $30,000 for a reasonable retirement, 20 per cent say $30,000 to $40,000, 25 per cent say $40,000 – $50,000 and 22 per cent say $50,000 to $60,000.

The sums simply don’t add up.

The good news for this age group is that 57.63 per cent fully own their home, while 28.63 are still paying a mortgage and 13.74 renting.   

So, do these figures suggest that there is an argument for raising the compulsory super contributions? If the Government wishes to reduce reliance on the Age Pension, and for Australians to realise their retirement aspirations, then, yes, this is the case.

Many of today’s retirees have not had the benefit of a lifetime of compulsory contributions, so they’ve had to invest outside of super. Today’s workers may be more likely to invest in housing and not so much in stocks and shares.

Compulsory super has only been in play since 1992, when a three per cent contribution was compulsory. That rate has increased since then, but has been frozen at 9.5 per cent since 2014.

Many comparative OECD nations consider a higher level is more appropriate. For example, Singapore’s Central Provident Fund – a compulsory savings plan for workers and permanent residents created to help fund retirement, healthcare, and housing needs – is between 25 and 32.5 per cent of a workers wage.

Although current millennial workers, who’ll enjoy a lifetime of compulsory super contributions, may be able to live a comfortable retirement, spare a thought for those looking to retire in the next 10 years.

And besides, what’s wrong with working hard all our lives so we can enjoy a comfortable retirement?

But even considering the benefits of a lifetime of compulsory contributions, many Australians will still rely on an Age Pension to supplement their retirement income.

What does this say about our notions of retirement income? Does it suggest that, while we may have an idea of what we need to live a reasonable retirement, we may not have the funds to back it up?

Related articles:
Not enough money for retirement
Rich versus poor in retirement
Family home in assets test: ACCI

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