The Grattan Institute has recently published what it describes as a Commonwealth Orange Book, a not very helpful guide for an incoming government on policy reforms. A lack of any national mood for adopting the types of policies they are advocating is seen as something that should be defied, with opposition to be stared down.
They might be doing a lot of staring in terms of superannuation policy as both the Coalition and Labor have made it clear that they are not interested in making any adverse changes to superannuation tax and like arrangements other than those already announced or in train.
Grattan in a number of ways has come up with a vision for superannuation which is very Mission Brown in colour. Used extensively in the 1970s, this muted, semi-chocolatey stain touched a huge number of homes; generally in ways that make us feel a little icky.
Mission Brown did not work then, and their Orange does not work now. Dull and unattractive are not adjectives you really want associated with anything. Their policies are also like a return to the 1970s in several other ways, including a greater reliance for retirement incomes on the Age Pension, and with good superannuation balances being the right of only a relative few.
The international scorecard which they have compiled for the document actually rates the Australian retirement income system quite well relative to other countries, at least in regard to the limited metrics that they put forward. We spend a relatively small percentage of GDP on the government provided Age Pension and replacement rates of income in retirement are relatively good for low to middle income earners. While the cost of tax concessions for retirement savings are a bit higher than in some countries because of greater reliance in Australia on private saving for retirement, the combined cost of the Age Pension and tax concessions—both now and projected into the future—is lower than the cost of government payments to the aged in just about every other developed country.
While Australia may appear less favourable when comparing the running costs of private pension schemes, the data used by Grattan are quite flawed and do not take into account the relatively strong investment returns achieved in Australia. Bonds are cheap to invest in compared to infrastructure and private equity but in a low interest rate environment they do not deliver the investment returns needed to drive good outcomes in defined contribution superannuation plans.
Compulsory superannuation in Australia is still a maturing system but it is really starting to deliver for retirees.
Recently published ATO figures indicate that for individuals aged 60 to 64, who are retired or approaching retirement, superannuation balances were quite substantial in 2016-17. For those with super, the average for males was $336,360 with a median of $154,453 and for females the average was $277,880 with a median of $122,848. These figures are well up on just two years earlier, when the median for males was $138,337 and $107,897 for females.
The data indicate that average and median balances actually increase after age 65. This somewhat surprising outcome appears to be driven by a significant number of low account balance individuals cashing out their superannuation after age 65. The data indicate that there were 565,400 males with superannuation aged 60 to 64 but only 400,936 with superannuation aged 65 to 69. For females the equivalent figures were 523,676 and 358,582.
However, the number of people aged 65 plus with superannuation was large, with 857,864 males and 722,538 females falling within that category. These numbers are well up on just two years earlier, when there were 745,693 males with superannuation and 599,519 females.
The Australian superannuation system is delivering substantial outcomes for Australians. Australians know this, with the great majority of Australians supporting the compulsory system and the move to 12 per cent Superannuation Guarantee contributions.
However, there remains considerable scope to further improve the system. ASFA’s proposals for an incoming government include the following:
- moving the SG rate to 12 per cent as soon as possible
- stabilising the tax settings for super over the course of the next Parliament
- boosting balances for women and low-income earners
- lifting the bar for MySuper
- providing SG for gig economy workers.
Australia needs to look forward and plan for even better outcomes, rather than looking back and replicating the shortcomings of our past.