Superannuation is “simply the wrong tool” to provide support for low-income earners in retirement, says the Grattan Institute.
The Superannuation Guarantee rate should not be increased to the planned 12% as it is too hard to target effectively, and the LISTO is eaten away by fees, argues Brendan Coates, the Australian Perspectives Fellow at the Grattan Institute
He says, in a paper presented to the Australian Gender Economics Workshop 2018, that higher compulsory super contributions are ultimately funded by lower wages, reducing the living standards of low-income earners, who are predominately women. Additionally, raising the SG rate could hurt the retirement incomes of current pensioners, by suppressing indexation of the Age Pension, which is linked to wages.
Coates also says that topping up the superannuation accounts of low-income earners – including via the LISTO or co-contributions – may not be the best way to improve retirement incomes.
“Superannuation is a contributory system: you only get out what you put in,” he says. As low-income earners don’t contribute much fixed fees eat up a larger proportion of their balances.
“Our research at the Grattan Institute shows that super fees levied on most workers receiving the LISC erode between 20 and 25 per cent of the value of the extra funds at retirement.”
Instead the Grattan Institute recommends two measures: tightener targeting of super tax concessions and a boost to the Age Pension for retirees who don’t own their home.
The Institute is calling for concessional contributions to be limited to $11,000 a year, from $25,000 currently, pension phase super fund income to be taxed at 15% – up from 0% – and for either a $250,000 lifetime cap on non-concessional contributions or an annual cap of $50,000.
“A targeted boost to the Age Pension for retirees who do not own their own home would do the most to alleviate poverty for women already retired, and at the least budgetary cost.”
“While the Age Pension provides a basic income to support a minimum living standard for retirees, it is proving insufficient for some, particularly for older women who live alone and do not own their own home.”
This proposed boost consists of a $500 increase to Rent Assistance for Age Pensioners, which the Institute estimates would cost $250 million a year.