Grattan Institute superannuation figure $50,000 off the mark, claims ISA

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Industry Super Australia claims the Grattan Institute has produced “flawed” modelling to support a call for the Super Guarantee rate to stay at 9.5%.

The Grattan Institute’s modelling indicates that increasing the Super Guarantee rate to 12% will cost workers $30,000 over their lifetime. But Industry Super Australia says this is almost $50,000 off the mark, with its calculations showing an almost $20,000 benefit.

According to the Grattan Institute, increasing the Super Guarantee rate from 9.5% to 12% will cost the typical 30 year old worker $30,000 over their lifetime – with a 2.5% reduction in wages and under a 1% increase to retirement income.

But Industry Super Australia (ISA) disputes these figures, with new analysis by two former Treasury officials – Phil Gallagher PSM and Bruce Bastian. This analysis finds that the average worker would be $18,100 better off over their lifetime, a difference of almost $50,000 compared to the Institute’s figures.

A couple would be $44,300 better off with the higher Super Guarantee rate, the analysis finds, in part because the Grattan Institute didn’t model women or couples.

“The Grattan Institute’s modelling assumes everybody works continuously from age 30 until they retire, before dropping dead at 92. They ignore the three million workers who are currently working intermittently and those not receiving super, particularly in casual and part-time jobs, or taking maternity leave or other career breaks,” says ISA.

Another cause of the difference between the figures is the assumed interaction between wages and super.

ISA says that the Grattan Institute’s figure is based on “dubious assumptions that don’t stack up” and that there “is no Australian evidence to support claims that an increase in super contributions will result in an equivalent reduction in wages”.

The Grattan Institute assumes the whole cost of increasing the SG rate is borne by employees losing wage increases, instead of by employers.

But ISA says there is “no demonstrated equivalent trade-off between super and wages” and that “small potential reduction that could exist is readily offset by the greater compound interest that will be earned on increased super contributions, which will result in much higher incomes in retirement”.

“Further analysis of historical Fair Work Commission decisions has also found no evidence that there is a full trade-off between wages and super increases. There is also the fact that the super rate has increased by only half a per cent in the last seventeen years while wages have gone through various stages of growth.”

Industry Super Australia Chief Executive Bernie Dean said the evidence was “clear”, “workers will end up with far more money in their pocket over their lifetime if the super rate increases as promised”.

“The claims made by the Grattan Institute are based on a fantasy world that doesn’t exist. What’s not a fantasy is the impact cutting the super increase would have on people in retirement. They would end up with less to support themselves and their family, while everyone would pay to support more people on the pension.”

There are concerns that the Government may pause or freeze increases to the Super Guarantee rate. The Treasurer has ruled out changes to the already legislated increase to 12%, though the Prime Minister has been more ambiguous on the issue. A number of Coalition backbenchers would support a freeze to the SG rate increases, potentially boosted by the results of the Review of the Retirement Income System. Jane Hume, Assistant Minister for Superannuation, Financial Services and Financial Technology, reportedly recently told a private industry meeting that a 10% SG rate was a “nice round number” that people could relate to, but denied that this was an indication of an intention to stall the SG rate at this level.

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