Contributions are the key to a comfortable retirement, rather than markets.
The drop in voluntary contributions since 2007 has had a greater impact on the overall adequacy of retirement income levels than the global financial crisis, according to Access Economics head of macroeconomic group Chris Richardson.
"The mistake people always make is to focus on sharemarkets - that really only gives you a picture for the people about to retire," Richardson said at the presentation of the AMP Retirement Adequacy Index yesterday.
"For someone who is about to start work tomorrow, it does not matter at all what today's sharemarkets are. The big key is how much they are tipping into the system," he said.
According to the AMP report, contribution rates as a percentage of salaries fell from about 13 per cent in 2007 to 12.4 per cent at the end of 2009.
Access Economics used the data from AMP's 328,000 corporate superannuation clients to measure the implications of the current super data for future retirement incomes.
"When you net out the compulsory contribution your fall becomes quite a big thing," Richardson said.
He argued that the impact of government policy towards contributions on adequate levels of retirement income is far greater than any market movements.
The planned increase in the superannuation guarantee (SG) to 12 per cent will, therefore, have a large impact on adequacy levels.
"The impact you are getting on adequacy in the future will come, not from the pension stuff or contribution caps, but it will be the 12 per cent," he said.
The SG increase to 12 per cent will boost the average annual net retirement income for Australian workers by $1795, bringing the average annual income to $45,710, the AMP report showed.
For Australians who have just entered the workforce, the impact will be even greater.
The report showed that 20-24 year-olds will have an extra $107,500 in assets when they retire, although this figure excludes inflation.
But Richardson did warn that it means people's income during their working life will be affected.
"It is too easy to think this is a magic pudding - that you make people better off," he said.
"You just change the timing, you have an impact on company profits, on people's wages, on tax collections. You are consciously willing to shift income out of the working phase into the retirement income phase," he said.
The two non-consecutive alphabetic letters encountered most often last week caused more controversy than the underlying policy they represented, Wouter Klijn writes.... read more »
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