The government finally released the findings from its Retirement Income Review on Friday, after being presented with the final report in July, and it appears poised to use the report to lay the groundwork to pause legislated increases to the superannuation guarantee.
The superannuation guarantee is supposed to increase from 9.5 per cent to 10 per cent by July 2021 and there are incremental increases planned before the rate reaches 12 per cent in 2027.
Prime Minister Scott Morrison committed to continuing the scheduled increase in superannuation at the last election, but now it appears the groundwork is being laid for this policy to be walked backwards.
Treasurer Josh Frydenberg, at a press conference announcing the review’s findings, said that the government would certainly consider pausing the increase before making a decision next year.
“This report is one voice and there have been many others in this space, including the governor of the Reserve Bank, who has pointed out clearly the trade-off between a person’s wages and the superannuation guarantee,” Mr Frydenberg said.
“The Grattan Institute has pointed out that trade-off as well, and we will make a decision by that time next year.”
Federal opposition leader Anthony Albanese said Labor would oppose any further delays to starting to increase the rate of the superannuation guarantee.
“This is a government that has never supported universal superannuation,” Mr Albanese said. “Universal superannuation is such an important reform, providing for retirement incomes for Australians, as we have ageing of the population.
“They (the government) look for any excuse to break the promises as they have done in each of the previous two terms of this coalition government. The fact is, we have a legislated increase for universal superannuation to 12 per cent. The coalition committed to not change that. But once again, they are laying the groundwork for another backflip …
“Make no mistake, Labor supports the existing 12 per cent superannuation that has been legislated and we’ll fight any attempt to undermine it, or change it, because that will be bad for workers in their retirement, and it is also not in the national interest.”
The report does not make any specific recommendations but instead makes a number of key observations, including support for the idea that increasing the superannuation guarantee (SG) would result in lower wages.
“A rate of compulsory superannuation that would result in people having an increase in their living standards in retirement may involve an unacceptable reduction in living standards prior to retirement, particularly for lower income earners,” the reports states.
“This is based on the view, supported by the weight of evidence that increases in the SG rate result in lower wages growth, and would affect living standards in working life.”
Industry Super Australia chief executive Bernie Dean questioned the findings linking growth in the superannuation guarantee to a slowing of wage growth.
He said that the super rate had increased just 0.5 per cent in the past 18 years and that, in that time, real wages growth had still been sluggish.
“We hope it (the report) will not be used to ask Australians to sacrifice hundreds of thousands in guaranteed retirement savings for a vague promise of a wage increase that history shows will not occur,” Mr Dean said.
“The two-thirds of Australians who support the legislated and long-promised super increase would not take too kindly to politicians, who pocket 15 per cent super on top of their generous salary, using this review to snatch away their retirement savings.
“This report’s findings must be used to support sensible reforms that will grow members’ savings, not cherry-picked to support preconceived policy ideas that will leave people and the nation worse off.”
The review, which looked at the three pillars of the retirement income system (age pension, compulsory superannuation and voluntary savings including home ownership), found that Australia’s retirement income system is “effective, sound and broadly sustainable” but said there was room for improvement.
The review said Australia’s retirement system was complex and people needed an improved understanding of how it worked to avoid making mistakes when their working life had finished.
“Complexity, misconceptions and low financial literacy have resulted in people not adequately planning for their retirement or making the most of their assets when in retirement,” the report stated.
“Adding to complexity is the interaction with other systems, such as the aged care and the tax systems.
“People need better information, guidance and good, affordable advice tailored to their needs.
“A major misunderstanding is the view that ‘retirement income’ involves the return from investing superannuation balances rather than drawing down those balances to fund living standards in retirement.”
The report found that the Age Pension, combined with other support payments to retirees, was effective in ensuring most Australians achieved a minimum standard of living in retirement in line with community standards, but that older Australians renting in the private market were not in the same boat.
It also found that increasing the rate of rent assistance would only have a small impact on addressing this problem, stating that an entirely new response would be required.
According to the report, at June 2019, around 71 per cent of people aged 65 and over were receiving the Age Pension or other pension payments and over 60 per cent of that group were receiving the maximum rate.
“The report finds that the Age Pension over the last decade has increased faster than inflation and faster than wage growth and that the Age Pension has continued to reflect community standards,” Mr Frydenberg said.
“Australia’s Age Pension, based on gross earnings, is in the top 25 per cent of OECD countries.”
The report also revealed that the living standards for those Australians forced into retirement before they reached pension age were dependent on the level of the JobSeeker payment and that these involuntary retirees experienced higher levels of financial stress and poverty.
Read the full Retirement Income Review report.
What do you think of the report? Do you think the compulsory superannuation payments should be increased? Do you think the Age Pension provides an adequate safety net for those with small superannuation balances?
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