Despite the last 25 years of uninterrupted economic growth, many Australians still feel financially insecure. Sluggish growth, non-stimulatory low interest rates and low wages growth have been matched with debt-fuelled house price inflation, pricing our children and grandchildren out of the housing market and making it more likely that people will reach retirement without owning their house or, if they do they’ll retire with a mortgage.
Those who do own their own home may take comfort from the rise in property values, but they must also recognise that they can’t eat their house and may be concerned about how they will maintain their lifestyle from other sources.
Amid this financial insecurity, superannuation stands out as a positive and stabilising force. Incredibly, a small but vocal minority want to tear down this outstanding piece of public policy and raid our pool of retirement savings to give a sugar hit to the economy.
New ASFA data shows that average superannuation balances are growing fast for all age cohorts and are now substantial for those approaching retirement. For individuals aged 60 to 64 in 2016-17 the median balance was $154,453 for males and $122,848 for females. These figures are well up compared with those approaching retirement just five years earlier.
We have come so far since compulsory superannuation was introduced in 1992 when it was common for Australian workers to retire with no savings. Now they have a much greater chance of meeting their aspiration for a dignified and independent retirement. But the data also shows there is still a gap between what people have at retirement today and what they need, and the best way of closing this gap is to move to a Superannuation Guarantee (SG) rate of 12 per cent.
We welcome the Prime Minister’s and Treasurer’s recent statements reaffirming the Government’s commitment to 12 per cent SG as there are numerous incentives to standing fast to this policy.
1. It delivers to our aspiration to be self-funded and self-reliant in retirement
We know Australians want more in retirement than what the Age Pension alone can provide. Australians also support superannuation as their primary means of achieving an adequate retirement income and they believe the Comfortable Retirement Standard is a desirable financial position to be in.
The Age Pension is only just above the poverty line. Even for those low-income Australians who will not be self-reliant in retirement, having superannuation balances of $100,000 or $150,000 will lead to a very different standard of living than that of someone who starts retirement on the age pension alone. The small additional income can make a big difference. It can allow a retiree to get the car fixed when needed or keep it running, or make an occasional visit to the dentist.
2. Superannuation is the preferred way for Australians to provide for retirement and they support compulsion
Earlier this year a representative survey of the Australian population conducted by CoreData found that around 80 per cent of those surveyed indicated they want to be in the position to spend at least what is set in the ASFA Comfortable Retirement Standard, which is around $43,300 a year for a home owning single person and $61,000 for couples. These amounts are realistic, hardly the land of milk and honey. Around 80 per cent of respondents across a range of demographics back the increase in the SG to 12 per cent. Over 90 per cent support compulsory superannuation.
3. Superannuation balances data shows the system is working
Growth has been strongest at the lower balance end of the distribution of superannuation accounts, particularly for women. The Government’s 2016 Budget measures combatted historical excesses in the system.
So, with the system delivering better outcomes, why is getting the SG to 12 per cent so important? One reason is that the ratio of retirees to workers is shifting from around one to 23 today to over one to 30 by 2051. More self-funding is needed to avoid an increased taxation burden, or worse yet, the vagaries of social upheaval experienced in countries like Greece, who have been unable to deliver on pension promises.
The number of people on the full Age Pension has been decreasing largely due to the advent of superannuation. An increase in SG to 12 per cent will see around 50 per cent of Australians largely self-funded in retirement by 2050, a remarkable achievement.
While great foundations have been laid, we face a retirement savings shortfall across every age group. For instance, with a current median balance for those aged 35 to 39 of $60,000 for males and $45,000 for females, there is around a $100,000 gap between these amounts and the amount needed at that age to be on track to reach the comfortable standard. Increasing the SG to 12 per cent in line with the scheduled timeframe will go a long way towards bridging this gap.
4. Superannuation allows Australians to participate in economic growth
In a low wage environment and in one where productivity growth has been flowing overwhelmingly through to the stock market, compulsory superannuation allows Australian workers to capture their fair share of that productivity growth. The pooling of savings also gives workers with modest balances access to asset diversification and wholesale rates normally available only to large-scale investors.
Superannuation is the antidote to poverty in retirement for Australians. We must avoid small-minded and short-termist policy making and do what we can to support superannuation delivering on its promise: higher retirement incomes and increasing self-reliance for all Australians and the Age Pension for the most vulnerable. The case for 12 per cent SG is clear.