5 February 2016
Halting scheduled increase to SG would reduce retirement incomes and increase future Age Pension expenditure: ASFA
In response to today’s speculation around a potential freeze in the rate of Superannuation Guarantee (SG), the Association of Superannuation Funds of Australia (ASFA) says that such a measure would not only reduce the retirement incomes of the majority of older Australians, but also lead to increased government expenditure on the Age Pension in the near future.
Currently, the SG is scheduled to increase from 9.5 per cent to 10 per cent in 2021, and then incrementally up to 12 per cent by 2025. This increase is important in ensuring that the superannuation system enables retirees to maintain a ‘comfortable’ standard of living throughout retirement.
“We have an ageing population, and as such will need to deal with a larger proportion of retirees and greater expenditure on health and aged care in the coming years,” explained Pauline Vamos, CEO, ASFA.
“Future governments need to have the flexibility to ensure that the most vulnerable are adequately cared for and as many as possible are funding their retirement needs.
“The SG is a crucial pillar of the retirement incomes system, as it enables a significant proportion of Australians to predominantly self-fund their retirement, reducing reliance on the Age Pension. However, the system is still maturing and we have not yet seen the full scope of these benefits.”
According to ASFA estimates, a retained SG of 9.5 per cent would result in around 40 per cent of retirees relying on the full Age Pension by 2050. The government expenditure on the Age Pension would consequently need to rise by approximately 25 per cent. The proportion of Australians achieving a comfortable standard of living in retirement would also fall to around 40 per cent of retirees (from 50 per cent if current increases were maintained).
The table below demonstrates both the increase to final retirement savings and the expenditure savings to the government from decreased Age Pension entitlement that would result from an SG increase to 12 per cent.
| Contribution level | $30,000 wage | $50,000 wage | $100,000 wage |
|---|---|---|---|
| Lump sum (after 30 years) if contributions made at the rate of 9.5 per cent | $116,000 | $193,000 | $386,000 |
| Lump sum (after 30 years) if contributions made at the rate of 12 per cent | $146,000 | $244,000 | $487,000 |
| Boost to final retirement savings | +$30,000 | +$51,000 | +$101,000 |
| Cost of extra tax concessions p.a. | +$68 | +$244 | +$550 |
| Decrease in Age Pension entitlement at qualifying age as a result of extra superannuation savings | 0 | -$1,000 | -$7,800 |
| Total income tax paid on wage p.a. | $2,247 | $7,797 | $26,447 |
“When looking at any changes to the scheduled increase in SG, we must return to the most important discussion: ‘what is the purpose of the superannuation system?’. If we are looking to the system to supplement or replace the Age Pension, and to ensure that as many Australians as possible are able to achieve a comfortable retirement, then the scheduled increase in SG is a material factor in allowing the system to meet its goals,” concluded Ms Vamos.
