An early Christmas present from the Grattan Institute was their latest report on superannuation and retirement incomes. However, for the superannuation sector, it was as welcome and as useful as someone with a beard receiving aftershave from an uncle or aunt on Christmas Day. Even worse, it is not something that can be regifted.
The report makes use of what they call the Grattan Retirement Income Projector (GRIP) model. However, it perhaps could be better called the Grattan Retirement Income Poor Expectations (GRIPE) model.
ASFA issued a strong response to the Grattan report when it was released. Paul Keating also provided a powerful defence of compulsory superannuation.
ASFA pointed out that in a world where there are broken work patterns, and where women’s balances are 40 per cent less than men, adoption of the Grattan recommendations would leave large parts of our society exposed to poverty in retirement.
Despite assertions by Grattan, ASFA has never said that every Australian should achieve the ASFA comfortable standard. However, for the bulk of the Australian population it sets a very relevant benchmark. This is confirmed by independent surveys of the population which indicate that most people aspire to achieve expenditure in retirement at ASFA comfortable or more. For those who do not aspire to it (or more), very often it is because they are limited by the financial resources available rather than the target being over the top in terms of consumption.
Spending around $43,000 a year for a single person and $60,600 a year for a couple, does not make you rich.
To be able to run and maintain a home, to eat adequate meals, to clothe yourself, to afford haircuts and grooming supplies, to run a motor vehicle, to purchase private health insurance and cover out-of-pocket medical expenses, to have a range of leisure and hobby activities, including domestic vacations and the very occasional overseas holiday, is not an unreasonable aspiration.
While the Grattan analysis contains a number of errors, one of the main factors in coming to their conclusions is the use of movements in the Consumer Price Index (CPI) as the deflator for their projections of retirement income rather than the movement in community living standards, with growth in average wages the proxy for that.
Discussions about the right deflator to use are normally confined to those comfortable at nerdfests, or who have an unhealthy interest in Star Trek episodes. However, a translation is that if you use CPI as a deflator you assume that acceptable living standards do not change, the same bundle of goods and services are purchased as at the start of the projection period, only prices for them change.
On that basis a retiree now should only expect to live the life of a typical person in the 1950s. This would mean no internet and like services, lucky to have a television (which really should be black and white screen) no car, no health insurance, not many whitegoods, holidays limited to a relatively nearby motel or camping ground, and a diet of lamb chops and potatoes.
Going forward we do not know what community living standards will involve in 30 years’ time let alone 60 years’ time in terms of the bundle of goods and services purchased, but one thing that is sure is that retirees will not be happy with the lifestyle of decades earlier.
Another outworking of the Grattan analysis is that it has a projection of the Age Pension at a level that is very high. For instance, the report asserts that a person retiring in 2052 will have access to the Age Pension which has a maximum rate of around $38,000 a year in today’s dollars. This drives their misleading assertions about the supposed no need to move to 12 per cent SG.
ASFA will continue to defend the compulsory super system as appropriate and rebut any misleading analysis that is published.
