The path for the increase of the Superannuation Guarantee to 12 per cent has had a few potholes along the way. As originally legislated it was due to steadily increase to 12 per cent by July 2019. Progressive proposals and actual legislation have progressively pushed that date out, initially to 1 July 2021 then to 1 July 2022 and then finally to 1 July 2025. The rate has been paused at 9.5 per cent since July 2014.
Some, such as the Grattan Institute, would push the date for increases out even further or cancel further increases altogether. Among other things, Grattan has argued that the ASFA Comfortable standard is set at levels far too high and that it involves expenditure in retirement which is higher than most individuals achieve prior to retirement.
Like a number of Grattan claims; such analysis is not well based.
There is clear evidence that the ASFA Comfortable standard is what a large proportion of the community want and need. The very large and ongoing Household, Income and Labour Dynamics in Australia (HILDA) Survey of the Australian population has obtained information from people aged 45 and over, who were not yet retired, about their expectations for the (after-tax) income they will require in retirement in order to have a standard of living which they regard as satisfactory.
These expectations, on average, align remarkably closely with the ASFA Comfortable budget standard.
The mean required income reported in 2015 was $43,128 for single people and $62,340 for couple. Unsurprisingly, being partnered increases expected income requirements, since the income needs to support two people.
Respondents to the question on income requirements were also asked how much they had thought about their income needs in retirement, and it seems that giving a lot of thought to the matter results in a higher assessment of income needs in retirement. Those who had thought a lot about income requirements in retirement on average reported needing $6,162 more per year than those who had not thought about it at all. However, inattention to retirement income needs does not reduce what people actually will require.
The HILDA researchers also concluded that based on pre-retirement spending, people do not have unreasonably high expectations of their income requirements in retirement.
This is confirmed by other available statistics. For instance, data from the ABS Household Expenditure Survey, 2015-16 indicate that even when allowance is made for differences in housing costs, both the average and median disposable incomes for households with a household head aged 55 to 64 are higher than the levels set by the ASFA Comfortable retirement standard. The average disposable income for such households in 2015-16 was $95,160 and the median disposable income was $76,230.
The currently scheduled increases in the SG are crucial for more Australians achieving their desired standard of living in retirement.
This is true across a range of income levels and circumstances.
For a person on $40,000 a year (below even median employment earnings) compulsory superannuation contributions supported by tax concessions have important roles to play in improving retirement outcomes. For such a person aged 30 and with a current balance of $20,000, the compulsory superannuation system will deliver an estimated $263,500 at retirement. If the SG stays at 9.5 per cent the projected amount falls to $223,700. The difference is substantial.
This also applies at other income levels. Someone currently thirty years old, earning $70,000 per year with 9.5 per cent Superannuation Guarantee (SG) and lifting to 12 per cent by 2025, is well on the way to reach the ASFA Comfortable standard of living by the time they retire at 67 with $500,700 if they currently have $50,000 in their super. However, reaching Comfortable would require having a partner with some savings and/or additional contributions. If the SG stays at 9.5 per cent they would be projected to have $431,200 at retirement, a much lower figure.
The reality is that many if not most individuals generally will not voluntarily save for retirement, or at least not at a meaningful level. People know that, and that is why they value the compulsory superannuation system.
As well, they know that employers will not be falling over themselves to offer higher wages if the SG rate does not increase. Wages also are generally subject to higher taxation rates than are employer superannuation contributions.
Going forward, ASFA will continue to advocate strongly for no further delays in moving to 12 per cent contributions.
