Super guarantee doesn’t need to be raised to 12%, says Grattan Institute

Superannuation myth, don't need to raise superannuation guarantee to 12%, conflate superannuation savings and retirement savings, Grattan InstituteThe Grattan Institute says it is a “big mistake” to conflate superannuation savings with retirement savings, and so the Superannuation Guarantee rate doesn’t need to be raised to 12%.

Superannuation is likely to remain the smallest retirement income pillar, and accounts for only 15% of household wealth, according to analysis conducted for the Grattan Institute based on ABS data and the Melbourne Institute’s HILDA survey.

“When confronted with facts about the modest contribution of super to retirement savings, many commentators point out that the system is immature,” says the Grattan Institute.

“It will be another two decades before typical retirees will have contributed at least 9 per cent of their wages to super for their entire working lives. But while we might expect younger households to save more in super, and less outside, that’s simply not true.”

“The enduring importance of non-super savings should come as no surprise. While compulsory superannuation forces people to save more via superannuation, there’s little evidence that non-super savings have fallen very much in response.”

The Grattan Institute says households will continue to hold assets outside of superannuation so they can access it earlier and due to uncertainty over superannuation rules. Also assets with favourable tax treatment, such as negatively geared property, will remain “attractive” as a way to accumulate wealth.

“Whatever the motivation, most households heading towards retirement have substantial non-super non-home assets to draw on.”

“Acknowledging super’s more modest contribution to retirement savings has big implications for retirement incomes policy.”

The Institute says that superannuation alone shouldn’t be expected to provide an adequate or comfortable retirement, “as the super industry demands”. Additionally ignoring non-super savings could result in policies which force people to save too much inside superannuation.

“The policy implication is that there is no compelling case to compel households to save 12% of their income through the Super Guarantee as currently legislated. This would effectively compel most people to save for a higher living standard in retirement than they enjoy during their working lives,” says John Daley, Grattan Institute CEO.

“There are powerful vested interests pushing the idea that super equals retirement savings,” said the Grattan Institute.

“Yet such a view is inconsistent with the facts. Super’s importance to retirement savings has been overblown for far too long. As the debate heats up over policy for Australia’s $2 trillion super sector, recognising what households actually save, and why, would be a big step in the right direction.”

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One Reply to “Super guarantee doesn’t need to be raised to 12%, says Grattan Institute”

  1. The conclusions drawn by the Grattan Institute in its recently released report How Households Save for Retirement are flawed.

    The report is based on the Grattan Institute’s analysis of four retirement income pillars.

    And several of these retirement pillars do not reflect the real world of how people save for their retirement

    The Grattan Institute has included the value of a person’s home, their house contents and their vehicles in their retirement income pillars.

    There are not many people who can say their house, their house contents or their vehicles are going to give them an income when they retire. So in the real world, I do not see how you can count the value of these as part of someone’s retirement income pillars.

    The Grattan Institute also includes in a person’s wealth, a theoretical calculation for the net present value of any future pension they may get, which the government of the day may not even be able to afford to pay.

    So once you remove these so called retirement income pillars, superannuation becomes a significant part of what is left.

    So to make a policy decisions based on the view that superannuation is currently the least important part of Australia’s retirement income system, is fraught with danger.

    Wayne Wanders
    Author of the Book Avoid the Poverty Trap
    wayne@avoidthepovertytrap.com.au

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