In responding to the Grattan Institute’s attack today on the legislated increase in the Superannuation Guarantee to 12 per cent, Association of Superannuation Funds of Australia (ASFA) CEO, Dr Martin Fahy stated:
“The Grattan Institute’s latest missive on retirement funding continues the pattern of selective and misleading modelling that seeks to undermine a retirement system that is globally acknowledged as one of the best in the world.
“Good public policy will always benefit from lucid, rigorous research and modelling. However, the Grattan Institute’s latest output is based on unsound assumptions regarding average earnings, working patterns, the future rate of the Age Pension, how the means test for the Age Pension works, and most importantly working Australians’ aspirations for a dignified retirement.”
The Grattan analysis incorrectly assumes:
- Not increasing the Superannuation Guarantee (SG) to 12 per cent would lead to a 2.5 per cent wage increase and this would flow through to individuals in full – an heroic assumption. In reality, the increase in personal tax, withdrawal of family tax benefits and child-care subsidies would erode most of the increase, leaving people no better off in working life and worse off in retirement.
- Increasing the SG to 12 per cent will not make a difference to retirees. The data actually shows the opposite. For a person on $60,000 a year (around the median wage) the increase in the SG will boost eventual retirement savings from $299,000 to $368,000. This will boost retirement income from $38,900 a year to $40,950 a year according to ASIC’s Moneysmart calculator, an increase of 5.3 per cent.
- Retirees would knock back extra superannuation because it would cause their Age Pension to fall. The evidence is that people prefer the certainty of their own savings over the uncertainty of future government payments. Additionally, pensioners are always better off with more retirement savings because they benefit not only from the income but from the ability to draw down on the capital – Grattan has erred in only considering the income.
- An unrealistic view of the future level of the Age Pension, based on using a CPI deflator. This distorts their calculations of lifetime income. Grattan assumes that when a person aged 30 now, retires at age 67, the full Age Pension will be $38,000 a year in today’s dollars. That represents a 58 per cent increase in the Age Pension which is simply unaffordable today, let alone in the future when an ageing population places further pressure on fiscal budgets.
Recent research shows that superannuation enjoys widespread strong support among Australians. A survey of 1,000 Australians conducted by CoreData found around 90 per cent of people supported compulsory superannuation and 80 per cent supported lifting the SG to 12 per cent from its current 9.5 per cent of wages.
“Next year’s Inter-generational Report will provide an opportunity to see the positive impacts that superannuation is having, and will have, on the cost of funding the Age Pension, the number of partially and fully funded retirees and the success of our retirement system compared to the pay-as-you-go models of Europe and elsewhere which are advocated by the Grattan Institute,” concluded Dr Fahy.
For further information and media inquiries, please contact:
Katrina Horrobin, 0451 949 300.
ASFA is the peak policy, research and advocacy body for Australia’s superannuation industry. It is a not-for-profit, sector-neutral, and non-party political, national organisation. ASFA’s mission is to continuously improve the superannuation system, so all Australians can enjoy a comfortable and dignified retirement.