Should workers be forced to save more of their weekly wage in order to support themselves in retirement? That is the question being asked by the Grattan Institute in a report released this week.
The think tank is calling for the Government to put the planned increase in compulsory super contributions on hold, in order that wages do not decrease.
In 2015, the institute also highlighted the repercussions of securing higher retirement incomes at the expense of quality of life during working years. The 2015 report, Super Tax Targeting, claimed that the Government proposal to increase compulsory contributions “would support a lifestyle more luxurious than most households experience during their working lives”.
The proposed Superannuation Guarantee Charge (SGC) increase to 12 per cent would save the economy around $2 billion per year, but the report says that money would be better suited to providing more rent assistance for retirees – mainly single women.
“Single women who are retired and do not own their own home are the group most likely to rely almost solely on the age pension, and are at the greatest risk of poverty in retirement,” says the report.
The report recommends a $500-a-year increase for renting age pensioners, at a total cost of $250 million a year.
Grattan researchers believe that the current SGC rate of 9.5 per cent is enough to support a comfortable retirement.
According to the report: “There is no strong case to raise the superannuation guarantee to 12 per cent, as currently legislated.
“If we project the retirement income for a median-income earner working for 40 years, and account for compulsory super contributions only – in other words, we ignore any voluntary super contributions and savings outside of super – we find that today’s 9.5 per cent Superannuation Guarantee and the Age Pension would provide the average worker with a retirement income equal to 79 per cent of their pre-retirement wage,” the report concludes.
Here’s my take on all this, for what it’s worth.
That’s all well and good for future retirees, but it doesn’t take into account current retirees as well as the 700 Australians retiring each day, including self-employed and casual workers who, combined, have not had the benefit of a lifetime of super contributions. So give credit to half of Grattan’s idea, as helping today’s age pensioners does have some merit.
YourLifeChoices own Retirement Affordability Index™ shows that the biggest fear for 80 per cent of today’s retirees is that they will run out of money before they die.
At least 15 per cent of retirees are renters, so it goes without saying that more rent assistance would be beneficial. But is this just a Bandaid solution, when increasing super to 12 per cent, as originally legislated, would ultimately address the concerns of older Australians outliving their savings?
Over 70 per cent of retirees rely on the Age Pension as their largest source of income, with fewer than 30 per cent saying that private income is their largest source of retirement funds.
At first glance, this may seem a promising result; however, when asked what is their standard of living in retirement, over 60 per cent said it is “about what they thought it would be”, with 21 per cent saying it was “worse than they thought” and only 13 per cent saying it was “better than they thought”.
So clearly, more retirees could have been better served by having more super contributions earlier and at a higher rate.
On the other hand, if the Government were to scrap its planned increases, maybe a better way to use any money derived from capping super contributions, aside from rent assistance, would be to increase the Age Pension, considering that a whopping 76 per cent of older Australians feel that the cost of living is rising faster than inflation – which is currently used to gauge Age Pension increases.
At the very least, the Government now has more food for thought.
Read more at www.grattan.edu.au
Do you think this is a good idea? Would you be happy to have less forced savings in order to support renting age pensioners? Is the Grattan Institute still missing the point on super?