The Grattan Institute has questioned the wisdom of increasing the superannuation guarantee to 12 per cent, prompting outrage from the super industry.
In an article published yesterday by John Daley, Brendan Coates and Trent Wiltshire, the Grattan Institute stated that government bipartisan plans to increase compulsory super contributions to 12 per cent will do little to boost the retirement incomes of many low-income workers, costing the federal budget billions now and into the future.
The public policy think-tank said that while superannuation lobby groups argue Australians need more super to fund a reasonable retirement, current levels of compulsory super contributions, along with non-super savings such as shares, bank deposits and interests in businesses or investment properties, and the age pension, are “likely to provide a reasonable retirement for most Australians”.
“Our research predicts that low-income Australians who make compulsory super contributions for forty years will, after accounting for inflation, retire on an income of well over 100 per cent of their working-life wage,” the article said.
“In other words, many low-income Australians will get a rise in pay when they retire, because the age pension and the income they get from compulsory retirement savings will be higher than the wage they received during their working life.”
The think tank also argued that the main beneficiaries from a higher super guarantee will be high-income earners, who already reap most of the benefits from generous superannuation tax breaks.
“By being forced to put even more into super, they’ll no longer pay income tax on that income; it will instead be taxed at a flat 15 per cent rate as extra contributions to their super fund,” it said.
Raising the super guarantee won’t just reduce workers’ take-home pay but also hit the federal budget, the Institute argued, pushing for the government to “abandon plans to raise the super guarantee”.
“Instead of workers receiving wages that are then taxed at full marginal tax rates, the extra compulsory contributions to their super fund will be taxed at a flat 15 per cent.
“The 2014–15 budget calculated that delaying an increase to the super guarantee of 0.5 percentage points saved $440 million in 2017–18,” it said.
“Raising the super guarantee to 12 per cent could therefore cost the budget around $2 billion a year in additional tax breaks.”
Industry associations push back
The Association of Superannuation Funds of Australia (ASFA) rejected the points raised by the Grattan Institute and accused the think tank group of “stoking intergenerational tensions” and ignoring the challenges posed by an ageing population.
“For a person aged 30 on $40,000 a year, with a current balance of $20,000, the compulsory superannuation system will deliver an estimated $236,500 at retirement,” said ASFA chief executive Martin Fahy.
“This will increase retirement income from $23,254 a year (the Age Pension) to $33,670 a year,” he said, adding that “even an extra few thousand dollars a year” could “make a real difference in retirement”.
Once the legislated increase in superannuation guarantee to 12 per cent of salary is introduced, ASFA projects that 50 per cent of Australians will be living comfortably in retirement by 2050, just over double the current proportion, Mr Fahy said.
“This is a unique social policy achievement that we should view with pride, optimism and confidence for the future.”
The Australian Institute of Superannuation Trustees chief executive Eva Scheerlinck added that keeping the current rate of 9.5 per cent would “deny most working Australians an adequate retirement income”.
“Lifting super to 12 per cent addresses the challenges of Australians living longer in retirement and ensures that our retirement income system is sustainable in the face of a rapidly ageing population,” she said.
“Halting the super guarantee timetable would leave future generations of taxpayers vulnerable to burgeoning age pension costs.
“The current timetable for the super guarantee increases represents a significant delay of several years on previous timetables supported by former Labor governments.”
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