Australians could be encouraged by the Federal Government to draw down on their superannuation balances and use equity in the family home to fund their retirement, rather than rely on increases in compulsory super contributions.
The Coalition is considering the findings of the wide-ranging Retirement Income Review, which was compiled by former senior Treasury Department official Michael Callaghan and covered the age pension, compulsory superannuation and voluntary savings.
The review was handed to the Federal Government in July and is set to be publicly released by Treasurer Josh Frydenberg on Friday.
It is likely to fuel suspicions the Liberal Party intends to defer the planned incremental increase in the super contribution from 9.5 per cent to 10 per cent due in July 2021. That rate is then set to increase to 12 per cent in 2027.
Limited excerpts of the review provided by the Government focus on the potential effect the compulsory super contribution increase could have on wages.
“The weight of evidence suggests the majority of increases in the [superannuation guarantee] come at the expense of growth in take-home wages,” the review states.
“If the superannuation guarantee stayed at 9.5 per cent rather than increasing to 12 per cent, [retirees] would also have higher incomes during their working life.”
The review also suggests that keeping the super guarantee at 9.5 per cent would increase incomes for most people across their working years by 2 per cent.
Housing could take on ‘even more important role’ in retirement income
The review finds the age pension provides a strong safety net and reduces income inequality, but notes the complexity of the superannuation system and low financial literacy means many retirees aren’t making the most of their assets.
It suggests an efficient way for Australians to enjoy a more comfortable retirement is by accessing the equity in their homes and drawing down on their superannuation balances.
“Home owners also have the opportunity to access the equity in their home to supplement retirement income and manage longevity risk, although few currently do so,” the review said.
“If this potential were realised, housing would take on an even more important role in the retirement income system.”
The report also identifies “a major misunderstanding” that sees retirees relying only on the return from their superannuation investments, rather than “drawing down those balances to fund living standards in retirement”.
The family home, which represents the largest share of net wealth for Australians aged 65 and over, is already regarded as important as it reduces accommodation costs in retirement.
But the corporate regulator ASIC has previously warned against “reverse mortgages” — where a loan is taken out using the family home as equity with no repayments made until the house is sold or the owner moves out or dies — because many borrowers had a poor understanding of the financial risks involved.
In a statement, Mr Frydenberg said the review made it clear Australia’s retirement income system is “effective and sustainable” and “will continue to deliver for Australians in their later years”.
“While the report doesn’t make recommendations, its key observations will play an important role in better informing future public policy and the retirement outcomes delivered to Australians,” Mr Frydenberg said.
“The report also reaffirms the need to simplify and enhance the efficiency of the superannuation system and lift home ownership rates as a driver of higher incomes in retirement.”
Speaking ahead of the release of the review, Labor’s Shadow Assistant Treasurer Stephen Jones said Mr Frydenberg needed to guarantee the scheduled increase in the super contribution to 10 per cent will happen.
“The Government has to stick to the promise that it made to the Australian people before the last election … this is a structural change to ensure Australians over multiple generations are set up with the right level of retirement savings,” Mr Jones said.
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