The Grattan Institute caused a stir this week, suggesting that the bipartisan proposal to lift compulsory superannuation contributions to 12 per cent would hurt those on low incomes.
According to the Grattan Institute, increasing the superannuation guarantee to 12 per cent would do little to boost the retirement incomes of many low-income workers, and cost the federal budget billions now and well into the future.
The authors of the report suggest that the best way to help low-income earners would be to scrap the proposed increase.
The Association of Superannuation Funds of Australia (ASFA) rejected the Grattan Institute’s proposal, slamming the suggestion as a ‘contrived assault’.
ASFA Chief Executive Dr Martin Fahy said that the Grattan Institute’s ideological hostility towards superannuation continued to cloud its judgement on retirement income policy and that its aversion to self-sufficiency in retirement posed a danger to current and future generations of Australian retirees.
“This is just another contrived assault by Grattan on our world leading superannuation system,” Dr Fahy said.
“The fact is that the system is delivering significant increases in retirement living standards for all Australians, including low income earners.”
According to ASFA, for a person aged 30 on $40,000 a year (below even median employment earnings), with a current balance of $20,000, the compulsory superannuation system will deliver an estimated $236,500 at retirement. This will increase retirement income from $23,254 a year (the Age Pension) to $33,670 a year.
In this example, superannuation savings only decrease the Age Pension entitlement by a small amount, which is contrary to the information provided by the Grattan Institute.
“Even an extra few thousand dollars a year will make a real difference in retirement – including allowing the retiree to undertake essential home repairs, visit the dentist, heat and cool their homes and have an occasional meal at the club,” said Dr Fahy.
Once the legislated increase in superannuation guarantee to 12 per cent of salary is introduced, ASFA projects that 50 per cent of Australians will be living comfortably in retirement by 2050, just over double the current proportion.
“This is a unique social policy achievement that we should view with pride, optimism and confidence for the future,” Dr Fahy said.
Dr Fahy observed that with the Federal Budget to be delivered next Tuesday, the Grattan Institute’s goal seems to be all about saving the Budget money in the short term.
“Grattan clearly doesn’t care about the adequacy of people’s retirement incomes or their quality of life in retirement – they are condemning retirees to be sicker, poorer and older for longer,” Dr Fahy said.
“Impoverishing retirees is no way to deal with the challenges they face, such as funding rising health and aged care costs. Ignoring these problems won’t make them go away.
“Stoking intergenerational tensions whilst conveniently ignoring the challenges posed by an ageing population represents a cynical approach to retirement income policy.”
Dr Fahy noted that the Grattan Institute’s assumptions are self-serving as they do not take into account the additional capital available to retirees in the form of superannuation savings, which increase income levels and generate higher living standards.
“Grattan selectively considers the interaction of superannuation and the age pension for a very narrow cohort to covertly justify the diminishment of superannuation,” Dr Fahy explained.
“The reality is that having more private savings, for all cohorts, results in better retirement outcomes.”
What do you think? Should the Government scrap the goal of increasing compulsory superannuation contributions?