Think tank talks big about super, but gets it wrong again

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The Grattan Institute’s claims that an increase in super contributions from 9.5 per cent to 12 per cent will leave an average worker $30,000 worse off over their life have been debunked by new analysis.

And the think tank is not off by a slight margin either – it’s around $50,000 wide of the mark.

Industry Super Australia’s (ISA) modelling shows that an average worker would end up with nearly $20,000 more income over their lifetime if the super guarantee increases to 12 per cent – $50,000 more than the Grattan Institute’s flawed modelling and misleading analysis claims.

“The claims made by the Grattan Institute are based on a fantasy world that doesn’t exist.,” said ISA chief executive Bernie Dean.

“What’s not a fantasy is the impact cutting the super increase would have on people in retirement. They would end up with less to support themselves and their family, while everyone would pay to support more people on the pension.

“There is no Australian evidence to support claims there is an equivalent trade-off between wages and super. This clearly shows that if super increases, workers will end up with more money over their life – not less.”

ISA analysis also shows that a married couple on average full-time wages – not modelled by Grattan as it does not analyse women or couples – would have an extra $44,300 in income over their lifetime. For average earners, an increase in compulsory contributions could see a couple’s lifetime income boosted by over $100,000.

The potential effect on wages if super contributions were increased to 12 per cent could have on a lifetime income is less than one per cent. The same lift in contributions would see a lift of 10 per cent in a person’s annual retirement income.

“Any small potential impact on wages would be further offset by increases in the amount of personal tax paid – because super is taxed less than wages – and the impact it would have on family tax benefits, making very little difference to a person’s working life income. This means workers will end up benefitting from a bigger total remuneration package than they would without the increase,” stated the ISA.

“Further analysis of historical Fair Work Commission decisions has also found no evidence that there is a full trade-off between wages and super increases. There is also the fact that the super rate has increased by only half a per cent in the last 17 years while wages have gone through various stages of growth.

“The Grattan Institute’s modelling assumes everybody works continuously from age 30 until they retire, before dropping dead at 92. They ignore the three million workers who are currently working intermittently and those not receiving super, particularly in casual and part-time jobs, or taking maternity leave or other career breaks.”

Do you think you would benefit from a lifetime of 12 per cent contributions?

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Written by Leon Della Bosca

Leon Della Bosca is a voracious reader who loves words. You'll often find him spending time in galleries, writing, designing, painting, drawing, or photographing and documenting street art. He has a publishing and graphic design background and loves movies and music, but then, who doesn’t?

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17 Comments

Total Comments: 17
  1. 0
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    The question is: “Do you think you would benefit from a lifetime of 12 per cent contributions?”

    Absolutely. It’s a no brainer. We hear of people who have accumulated enough to live comfortably with a combination of super and an age pension when compulsory super started at 3% and has risen to 9.5% so a working life with 12% would be much, much better.

    I expect a barrage of moans and groans from those with an agenda about a particular government or how women will be disadvantaged but that is off topic. This forum seems to be a lot like Question Time, a question is asked after a lengthy preamble and the question is ignored but points raised in the preamble are made the main topic.

  2. 0
    0

    The final outcome at retirement is not simply a matter of a lifetime of 12% contributions. There are quite a few other factors that need to be considered such as personal contributions either after or before income tax (salary sacrifice), performance of superannuation funds generally, fees and charges, the investment mix (high risk v’s low risk), entitlement to co-contribution annually, longevity, unemployment periods, male or female employment differences, any early withdrawals for say unforeseen medical expenses, changes in Govt policy, the economy, and so on.
    No wonder the so called “experts” can’t get their model right over a “typical” lifetime.

  3. 0
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    It is granted that any increase in the compulsory superannuation contribution rate would be a benefit to the superannuants. However, the net benefit to the retirees remains to be worked out after all the concessional tax and GST, charges and fees for superannuation administration and advice, the inflation rate, and the volatility of the financial markets and their products, as well as the life-expectancy.

    In the past, the actuary would have performed this task quite accurately for the life expectancy of 10 years after retirement. Since retirees are enjoying longevity these days, the factors affecting the superannuation nest eggs for a comfortable retirement needs to be reconsidered. The superannuation model for replacing OAP requires a new design of the superannuation system for our future retirees. The current system only benefits the Master Funds and the retail industry. This is because of the shareholder-value is factored in their bottom line. The question is, should superannuation should be a commercial entreprise?

  4. 0
    0

    We have been advised for several years that the current 9.5% super is not enough and that we should be saving more like 15% if we want a reasonably comfortable independent retirement.Therefore, raising the level of contribution to 12% would still result in a shortfall though perhaps not as much. People would likely be better off in retirement than they wouold be with the current 9.5% – provided of course that everyone keeps their hands off it (stop moving the goalposts, stop begging for access for housing etc). Superannuation is for one thing and one thing only: funding your retirement.

    The real problem is that people are unconcerned about retirement income when they are in thier late teens or 20s and starting work. It is only when they get to 50+ and retirement suddenly seems close that they start taking an interest and then panicking about how they will make ends meet once they fully retire. It is this attitude that has to change, not just the increase in contributions.

    • 0
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      Exactly. If we could encourage young people to start salary sacrificing when they first start work instead of throwing their money away buying every new model phone that comes out they would be setting themelf up for a very comfortable retirement.

    • 0
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      All good ideas but how do you convince young workers to increase Super contributions when we have government representatives talking about restricting access to the funds after retirement.
      I have heard them talking about dropping lump sum witdrawels and not allowing remaining balances to be inherited by the sons and daughters. Why would you invest in such an unstable environment?

  5. 0
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    Just further proof the Grattan Institute is nothing more than a hot air factory.

  6. 0
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    One of the reasons that the economy has stagnated at the moment is the lack in wage increases. If super rises to 12% where will it come from – wages. A stagnant economy yields reduced interest rates as per now with super balances projected to gain less than 5% in the future as long as interest rates remain low. This ads on tv showing how much super increases is completely false. The people involved must have been earning well over 100 grand a year for over 15 years for their balances to increase at the rates they are advocating. Take a look at who is promoting the increase in super contributions – ISA. And has anyone calculated how many companies will go to the wall with another 2.5% wage tax?

  7. 0
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    Planing for Retirement and Superannuation are along Term Strategy.
    For the better Part of the Last Two Decades, Crystal Ball Gazing might had the same Result for a Pessimistic Person.
    The continual Changes and Pompous @’s who Earn Enormous Incomes and Retirement Benefits dictate to ordinary income and retirement benefits.
    This Is How We See It, first open your eye’s and ear’s then Shut your Mouth.
    When you are on a lower Income, Day to Day expectations come First.
    Retirement an unaffordable Reality, if there is any money over it would be needed more for unexpected needs in near term. Especially in Family Situations.
    The Compulsory Super could be there only Savings.

  8. 0
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    The whole country would benefit too if in order to get the 12% they were forced to sal sac 5% of their wages or salaries as well, this would provide some incentive to those that sit back with their hand out to put some in themselves in order to get some cream

    • 0
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      That sounds like an extra tax to me. May as well call it one and set up a Social Security Fund and get rid of compulsary Super. Good luck keeping the funds out of the hands/pockets of politicians though.

  9. 0
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    Governments never sets up a commission, enquiry or advisory board without branch stacking it first to get the EXACT answer it wants to hear to suit their biased political/economic agendas.

  10. 0
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    It’s hard to find a case when you get a correct analysis from Grattan as they are clearly blinded by their ideologies.
    As Rae also noted above, they will usually get it wrong anyway (irrespective of other reasons) as they depend on Averages to arrive at conclusions – with retirees such as Turnbull badly skewing the results.

    In fact this whole discussion is quite meaningless as it is driven (as in this article) by the views of interested parties who will push their own agendas.

    How much simpler it would be if they had Universal Age Pension for all with NO tests (except Age and Residency) and simply have a) a fixed percentage of concessionally taxed Super (say 10%) from employers and with b) employees able to contribute an additional percentage or amount, again concessionally taxed, to top up their retirement savings. NO MORE Govt interference in Retirees’ lives!

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