With the Federal Budget around a week away the Grattan Institute have said the Government should abandon plans to raise the Superannuation Guarantee rate.
The Grattan Institute says that if politicians really wanted to help low-income workers and fix the budget they should “act soon” and cancel the scheduled increase in the SG rate from 9.5% to 10% on 1 July 2021.
The Institute says that enterprise agreements currently being negotiated will take the legislatively scheduled increase into account.
The Grattan Institute has stepped up its campaigning against increasing the Super Guarantee rate recently, saying it is “simply the wrong tool” to help low-income people save for retirement.
There have be indications the Government may change the schedule for increases to the Super Guarantee rate. Kelly O’Dwyer, Minister for Revenue and Financial Services, recently said that the Super Guarantee had a “detrimental impact” on wages. Assistant Treasurer Michael Sukkar has said that the Government was “vindicated” in its decision to delay increases to the SG rate by several years – under the previous schedule the SG rate would already be 11.0%, going to 11.5% on 1 July.
The Treasurer was asked yesterday if the Government was considering changing the SG rate timetable in the Budget. “Those measures have been in place for some time now. Anything we would have to say about that, obviously I wouldn’t be saying today, but this hasn’t been an issue that we have been proposing any changes to,” answered Treasurer Scott Morrison, which doesn’t preclude proposing changes in the future.
The superannuation industry has argued that leaving the SG rate at 9.5% will condemn low-income earners to poverty in retirement.
The Grattan Institute calculates that low-income earners with Super Guarantee contributions over 40 years of work will be able to retire with an income “well over” 100% of their working wage. Though this is based on the retirement savings keeping up with inflation, whereas the superannuation industry says savings should keep up with growth in future living standards.
Additionally, increasing the SG rate could leave low-income earners worse off, by reducing the Age Pension they receive. The Grattan Institute calculates that a 12% SG rate would lead to future Age Pension payments being 2% lower than otherwise.
Raising the SG rate also impacts the Federal Budget, with a 12% rate costing the Budget around $2 billion a year – potentially a reason Treasury Ministers have been interested in changing the rate.
The 2018/19 Budget will be released on May 8.
Grattan Institute has “ideological hostility” towards super: ASFA
The call to stop increasing the SG rate has been rejected by the Association of Superannuation Funds of Australia (ASFA).
ASFA CEO Dr Martin Fahy said the Grattan Institute has a “ideological hostility” towards superannuation and that this was clouding their judgement on retirement incomes policy and “posed a danger” to the incomes of current and future retirees.
“This is just another contrived assault by Grattan on our world leading superannuation system,” he said.
Dr Fahy suggested the goal of the Grattan Institute seemed to be saving money in the Budget over 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,” he 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 inter-generational tensions whilst conveniently ignoring the challenges posed by an ageing population represents a cynical approach to retirement income policy.”
“The fact is that the system is delivering significant increases in retirement living standards for all Australians, including low income earners.”
Dr Fahy said increasing the SG rate will only decrease Age Pension entitlements “by a small amount”, rejecting “assertions” to the contrary by the Grattan Institute.
Dr Fahy accused the Grattan Institute of using “self-serving” assumptions in their modelling by excluding the impact of more capital being available to retirees.
“The reality is that having more private savings, for all cohorts, results in better retirement outcomes.”
ASFA calculates that a 12% SG rate will lead to 50% of Australians living comfortably in retirement by 2050, which is slightly more than double the current proportion.
“This is a unique social policy achievement that we should view with pride, optimism and confidence for the future,” said Dr Fahy.