The 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.”