The findings in a controversial report from the Grattan Institute are broadly in line with internal Treasury analysis, documents recently released under FOI reveal.
A Grattan Institute report released late last year, called Money in retirement: more than enough, found that most Australians would have enough money for retirement, and so recommended against increases in the Super Guarantee rate.
Documents released under Freedom of Information, including a Treasury Ministerial Submission, show the Treasury summarised the Grattan Institute report by saying: “The conventional wisdom that Australians do not save enough for their retirement is incorrect. Overall, retirement incomes are currently adequate for retirees and will remain so.”
“Most retirees today are more comfortable with their finances than younger Australians who are still working. Retirees spend less and many are net saves, often leaving their nest egg as large as their savings on the day they retired”.
The documents say the findings of the Grattan Institute are “broadly consistent with internal Treasury analysis”.
Treasury is of the view – which is disputed – that an increased Super Guarantee comes out of wages.
“Though compulsory SG contributions are paid by employers, wage setting generally takes into account all labour costs. As such, it is widely accepted that employees bear the cost of higher SG in the form of lower take home pay.”
“This means there will be a trade-off between people’s income during their working lives and their income during their retirement.”
This is part of the motivation of some Coalition MPs who have been calling for another pause, if not freeze, for increases to the SG rate. Though senior Treasury Ministers have committed to the currently legislated increases.
Treasury also says that increasing the SG rate could widen the superannuation gender gap.
“The main drivers of women having lower balances than men are women’s lower incomes and longer career breaks. While the increase in rate of SG would increase retirement balances for women, it would likely lead to an even larger increase in male retirement balances due to their higher lifetime earnings.”
While the modelling may produce similar results, there is differing views on the implications for policy.
One of the recommendations of the Grattan Institute is that the Superannuation Guarantee rate should stay at 9.5%. Treasury says: “The SG rate will increase to 12 per cent by 2025. The Government has no plans to change this at this time. It is important that people have certainty around how much their compulsory superannuation contributions will be into the future so they can plan accordingly.”
The Treasury documents indicate the Government is not interested in adopting any of the other recommendations either – including considering raising the age pension age to 70, lowering the taper rate to $2.25, and increasing Commonwealth Rent Assistance.
Treasury emails, also released, highlight the finding that “no one is drawing down on their assets (ie. spending) at a rate fast [sic] than their assets are growing at”.
“Retirees of tomorrow can expect to be even better off. The average worker today can expect inflation-adjusted retirement income of at least 90 per cent of their pre-retirement income – well above the 70 per cent benchmark endorsed by the OECD,” says another document.
The findings of the report are “broadly consistent with Treasury analysis that finds a replacement rate above 90 per cent for the median salary and wage earner where incomes are deflated by CPI and based on average retirement life income as a percentage of the average of the last five years of working life salary and wage income”.
Though using CPI for these calculations has been criticised.
Rice Warner’s criticism that the use of CPI by the Grattan Institute is inappropriate is also noted in Treasury correspondence, as it “amounts to saying that retirees shouldn’t participate in improvements in living standards above inflation”.
Though an email to the Treasury Retirement and Income Modelling Unit says use of different spending data by the Grattan Institute (which uses the ABS Survey of Income and Housing data instead of the HILDA survey used by “AIST/super industry”) is a “pretty robust rebuttal to the criticism of CI deflation on the grounds of costs rising faster than CPI in retirement”.
But the criticism of the Grattan Institute report is broader than just CPI.
“The superannuation industry criticised the Grattan Report. This includes the Industry Super Australia describing as ‘deeply flawed’ Grattan Institute claims that the SG at its current rate will deliver adequate incomes for future retirees.”
Emails point to some of the criticism by ISA of the Grattan Institute modelling, including that it “hides low contributions and savings cohorts by grouping them together with higher contribution”, there are “no couples or gender splits”, “no work breaks assumed”, and “home ownership is assumed”.
Though another email says the criticisms by ISA “look pretty specious”, and points out that ACOSS (Australian Council of Social Service) and the BCA (Business Council of Australia) are “quietly in favour of Grattan’s proposals”.
In a list of “Treasury comments” on a draft of the Grattan report, Treasury said that is would be “beneficial” if the report considered alternatives to Account Based Pensions, such as Comprehensive Income Products for Retirement (CIPR).
Large sections of the documents released are blanked out, with references to the FOI Act for exempt or irrelevant matter.