Is super a big mistake?

A Grattan Institute report claims that superannuation savings only account for a small portion of retirement savings and that increasing employer contributions to 12 per cent would be a mistake.

According to the report, How households save for retirement, which takes into account statistics from the Australian Bureau of Statistics (ABS) and the Household, Income and Labour Dynamics in Australia (HILDA) report, the discussion about ‘savings for retirement’ and ‘superannuation savings’ being the same thing is a “big mistake”.

The study draws the conclusion that superannuation savings account for just a small portion – around 15 per cent – of total retirement savings. Instead, says the report, the average Australian saves as much outside super as within the system, and that many households have assets other than super that outweigh the value of their homes.

Many industry pundits point out that the super system is still quite young, saying it will be another 20 years before the typical retiree will have had 9 per cent of a full working life’s wage put into super. However, the report states that, even discounting home ownership, households in the 25 to 34 and 35 to 44 age brackets still have assets outside super that are larger than those inside super.

The report claims that households set aside a larger portion of wealth outside super so they can draw down on it prior to retirement age. They may also be motivated by a fear that the Government will make future changes that affect their super savings.

These findings could have implications for retirement income policies, especially when the compulsory contribution rate moves to 12 per cent, as scheduled over the coming years. The report suggests that higher compulsory rates are not necessary and will come at the expense of lower wages, thus reducing the quality of life throughout most people’s working years.


Opinion: Beware the law of averages

Although the Grattan Institute appears to make a compelling case, claiming that super’s importance to retirement savings has been “overblown” may seem a stretch, especially when its estimates are based on averages.

If the purpose of super is to supplement or substitute for the Age Pension, then surely the Government’s intended legislation to increase the compulsory contribution rate will do more to cover the future cost of an ageing population and reduce dependence on the pension to ensure a decent life in retirement.

The report’s claim that Australians save just as much outside of super seems a bit far-fetched, especially when we consider that many older Australians are living just above or below the poverty line. Compulsory super savings will assist the retirement of many of these people.

The report is based on research from the ABS and HILDA which, in turn, draw their conclusions based on averages. These numbers also take into account the fact that retirees own their home. Wouldn’t it be wiser to work from averages that discount those who rent or part-own their home? And, as we all know, those averages are skewed by the ultra-wealthy. When we see a report that excludes the top two to five percent of earners then, maybe, we can take the Grattan report a little more seriously.

Until then, let’s allow the Government some leeway while it traverses its current path. Superannuation policy is being reconstructed with the aim of relieving pressure on the budget, both now and in future. Having a public forum where the true ‘average’ Australian can submit their thoughts and ideas about super and how it affects them is also a great and fair idea, so long as those public recommendations are not completely ignored.

What do you think of the Grattan Institute’s findings? Do you agree with the notion that superannuation is overblown? Do you think that your superannuation savings are a vital part of your retirement income?

Related articles:
How will super changes affect you?
The Age Pension is inadequate
Rich versus poor in retirement