Any policy that erodes 12 per cent compulsory super will leave more retirees dependent on Centrelink and future taxpayers paying more tax.
ASFA research released today, Poorer retirees, higher taxes: The alternatives to 12 per cent compulsory superannuation, shows that a cut in compulsory super from 12 per cent to 9 per cent would increase the future Age Pension bill by $15 billion, move an extra 10 per cent of retirees onto welfare, and significantly increase the number of Australians receiving the full Age Pension.
This would make Australia more closely resemble the less sustainable situation in New Zealand.
ASFA has also released comprehensive modelling of the retirement savings impacts of One Nation’s proposal to allow access to one quarter of a worker’s super contributions where that worker is renting or paying a mortgage.
The modelling shows a bad trade-off for the people the policy aims to help.
A 30-year-old on average full-time earnings of $110,000 would receive around $54 a week towards their rent or mortgage, but would retire with $23,900 less in today’s dollars if they used the scheme for three years, as proposed by One Nation. If the Super Guarantee was permanently reduced to 9 per cent, they would retire with $181,900 less in today’s dollars.
A reminder why the current system exists
ASFA CEO Mary Delahunty said the research was a reminder of why the current system exists.
“Super is what stands between most working Australians and a retirement on the Age Pension. Every dollar taken out of super now is about three dollars that taxpayers have to make up later.
“Less super means higher taxes. Less super means people will be poorer in future,” Ms Delahunty said.
Super is achieving its aim of reducing retirees’ reliance on taxpayers. Age Pension spending has fallen from around 2.6 per cent of GDP to around 2.3 per cent, even as the population has aged. Treasury projects it will fall further because of super, to below 2 per cent of GDP by 2066. That is a saving to the Federal Budget of around $15 billion a year in today’s dollars.
New Zealand shows what the alternative looks like. Its KiwiSaver scheme started 15 years after Australia’s system, is not fully compulsory and has a minimum contribution rate of 7 per cent. While Australia’s public pension cost is projected to keep falling, New Zealand’s is projected to rise from around 5 per cent of GDP currently – twice Australia’s spending – to around 7 per cent by 2060.
The cost of cutting super to 9 per cent
ASFA’s research models what would happen if the compulsory rate was reduced from 12 per cent to 9 per cent.
Age Pension spending by 2060 would be around 2.5 per cent of GDP rather than 2 per cent or less, an extra $15 billion a year in today’s dollars. Around 60 per cent of the eligible age group would be on a full or part Age Pension in 2059, rather than 50 per cent, with many more on a full pension.
Cutting the super rate by 3 percentage points would also reduce national investment and productivity over time. The resulting fall in productivity would cost the average full-time worker around $600 a year in the future, in lost real wages.
Without compulsory super at all, Age Pension spending would be around 3.3 per cent of GDP, around $30 billion a year more than today, and retiree poverty rates would roughly double. This does not factor likely changes to Age Pension eligibility which may become necessary as super savings reduce across the population.
The individual costs of One Nation’s proposal
ASFA has conducted detailed modelling of the reduction in retirement balances, in today’s dollars, for people opting into 9 per cent super at different ages.
The three-year scenario reflects One Nation’s proposal as announced on Monday. The permanent scenario reflects what happens if someone opts into a permanent 9 per cent arrangement.
“It is very difficult politically to take cash out of people’s pockets once it has been put in, even if it’s to their long-term detriment. There is a serious concern that future governments would find it politically irresistible to make a temporary reduction to 9 per cent permanent,” Ms Delahunty said.
Three years at 9 per cent super
| Worker on average earnings ($75k) | Worker on average full-time earnings ($110k) | |||
| Opt-in age | Maximum amount withdrawn (3y) | Effect on super balance at 67 | Maximum amount withdrawn (3y) | Effect on super balance at 67 |
| 30 | $5,700 | -$16,300 | $8,400 | -$23,900 |
| 35 | $5,700 | -$14,100 | $8,400 | -$20,600 |
| 40 | $5,700 | -$12,100 | $8,400 | -$17,800 |
| 50 | $5,700 | -$9,000 | $8,400 | -$13,300 |
Permanent reduction to 9 per cent
| Worker on average earnings ($75k) | Worker on average full-time earnings ($110k) | |||
| Opt-in age | Cash amount received per year after tax | Effect on super balance at 67 | Cash amount received per year after tax | Effect on super balance at 67 |
| 30 | $1,900 | -$127,900 | $2,800 | -$181,900 |
| 35 | $1,900 | -$101,600 | $2,800 | -$146,300 |
| 40 | $1,900 | -$78,800 | $2,800 | -$115,600 |
| 50 | $1,900 | -$42,200 | $2,800 | -$61,800 |
The cost of living and housing crises need their own policy solutions
“Super solves a very specific policy problem, which is how we make Australians less dependent on taxpayers in retirement, especially as our population ages and the tax base of working-age people shrinks relative to the size of the population.
“The two major policy problems of this era are the cost of living and housing crises, neither of which were caused by everyday working Australians. These problems need their own policy solutions. Forcing Australians to solve them by robbing from their own future selves is simply unfair.
“Australians can have a decent income today and a decent retirement tomorrow. Any politician telling them they have to choose is not offering them a helping hand. They’re offering them a worse deal than previous generations had,” Ms Delahunty said.
Ends
The full research paper, Poorer retirees, higher taxes: The alternatives to 12 per cent compulsory superannuation, is available for download here.
Members of the media may contact:
Scott Roberts
Media and Content Lead
sroberts@superannuation.asn.au
0451 949 300
About ASFA
ASFA is the peak policy, research and advocacy body for Australia’s superannuation industry, and the only industry body that represents all parts of the APRA-regulated system.
Our more than 100 members include retail, industry, corporate and public sector funds and their service providers. For over sixty years, ASFA has been the voice of super, advocating for a dignified retirement for all Australians. Through research, advocacy and collaboration, ASFA promotes efficiency, sustainability and trust in Australia’s world-class retirement income system.