When too much super is never enough
12 . 11 . 18
By Ignatius Wilson
Super contributions should be kept at 9.5% indefinitely and not lifted, the retirement age lifted to 70 and the aged pension should be increased to better deal with what is an antiquated super system, an ageing population and the overall wealth of Australians, according to a recent Grattan Institute report.
The Grattan Institute, a government and industry-financed research institute, has disputed superannuation industry and existing government policy by suggesting that a rise in compulsory superannuation contributions by employers is unnecessary. Current policy forecasts to 2025 and a rise to 12% from today’s 9.5%.
Super is a workers’ union-founded policy that Paul Keating’s Labor government instituted for all eligible Australians in 1992 at 3% compulsory contribution. Collectively, assets held in super now stand at an estimated $2.7 trillion, or $2.7 million million.
The report instead suggests two alternatives to raising the super contribution rate: that the retirement age rises to allow a longer period of super accrual, and that the age pension is increased, to support those without substantial super assets.
Super industry figures have called the assumptions around the Institute’s modelling into question. Whether or not employees will be continuously employed thus accruing constant super growth; that voluntary super contributions should make up a considerable amount of someone’s retirement planning; and that quality of life in retirement can be compartmentalised into either relying on voluntary contributions (the very wealthy) or relying on the aged pension (the poor).
These three assumptions logically lead to a lower required compulsory rates of employer contributions going forward.
Paul Keating has added his voice to calls to keep with the current programme and even increase compulsory super contributions based on three economic and social aspects.
Low interest rates, as a low-risk asset allocation relies on interest rates to increase the wealth held in super, is one. What Keating calls the ‘community standard’ to empower those in lower socioeconomic classes to increase their wealth and not making them rely on the aged pension (rather than splitting people into the haves and have-nots of super) is another.
Thirdly, Keating cites the disparity between inflation, wage growth and business earnings. Inflation cuts into any wage growth an employee receives by increasing the real cost of living; inflation of 1.9% and wage growth of 1.9% is an effective pay rise of nothing. Business earnings, on the other hand, are up more than 10% over the last five years. Businesses, therefore, can afford to increase their contributions to employee super.
Whether or not you believe superannuation is relevant to your retirement planning (it is) or even your wealth management, changes to superannuation policy are extremely important because they will affect your money for decades to come. You can read the report here https://grattan.edu.au/report/money-in-retirement/