The compulsory superannuation contribution should be frozen at 9.5 per cent to encourage Australians to consider more flexible options to save for retirement, according to a report out today.
The Grattan Institute said the Federal Government should reconsider lifting the compulsory contribution to 12 per cent, warning that a focus on superannuation alone will not necessarily provide an adequate or comfortable retirement.
The study argued it is a mistake to confuse superannuation with retirement savings given that, on average, superannuation only accounts for 15 per cent of household wealth.
The former Tony Abbott-led coalition government froze the super contribution at 9.5 per cent until mid-2021, after which it will gradually rise to 12 per cent by mid-2025.
Under Labor it had been due rise to 10 per cent in mid-2015 and hit 12 per cent by mid-2019.
“Even without counting the family home, the average Australian saves as much outside as inside the super system,” Grattan Institute head John Daley says.
He says it will be another two decades before typical retirees will have contributed at least nine per cent of their wages to super for their entire working lives, yet younger households have assets outside super as large as those inside super.
A recent Reserve Bank study found for each extra dollar of compulsory super it has only offset non-super savings of between 10 and 30 cents.
Mr Daley sees little reason for this pattern of non-super savings to change radically, particularly when other asset classes, such as negatively geared property, are lightly taxed.
Having savings outside of super gives households an option to use it before turning 60.
They are also nervous the government may change the superannuation rules before they retire.
Mr Daley says ignoring non-super savings may lead policymakers to force people to save too much through superannuation, if the compulsory guarantee is lifted from 9.5 per cent to 12 per cent as legislated.
“There are powerful vested interests pushing the idea that super equals retirement savings, yet such a view is inconsistent with the facts,” he said.
He also agreed taxpayers were rightly cynical about superannuation policy, given the politicisation of retirement and super tax breaks.
“It’s no surprise that people don’t trust government not to change the rules,” Mr Daley said.
“But I think it’s also perfectly rational for people to have some of their savings where they can use it before they turn 65.”
The study comes as superannuation remains a hot political issue, with the Federal Government negotiating to convince the Senate to approve reductions in tax breaks for super contributions.