A new superannuation report has come under fire after it sensationally claimed many Aussies have been wrongly convinced they won’t have enough savings to live on once they’ve retired – when actually, most will go on to live comfortably or even enjoy a pay rise when they leave work.
The Grattan Institute report, Money In Retirement: More Than Enough, claims that superannuation lobbies’ “fear factor” has left many Aussies unnecessarily worried about their retirement, when most will actually enjoy a higher standard of living when they’ve retired compared to when they were working.
In fact, it claimed retirees are less likely than working-age people to suffer financial stress and more likely to be able to afford annual holidays.
According to the report, most workers today could expect a retirement income of at least 91 per cent of their pre-retirement income – above the 70 per cent benchmark endorsed by the OECD – which the report says is “more than enough to maintain pre-retirement living standards”.
Elsewhere it claims that many low-income Aussies will actually get a pay rise when they retire, through a combination of the Age Pension and their compulsory superannuation savings.
“The financial services industry ‘fear factory’ encourages Australians to worry unnecessarily about whether they’ll have enough money in retirement,” Grattan Institute CEO John Daley said.
The Melbourne-based thinktank also called for superannuation tax breaks and age-based tax breaks to be reduced, the plan to increase the rate of compulsory superannuation contributions to be scrapped, and the age pension assets test to be loosened.
However, the claims in the report have been slammed by Industry Super Australia (ISA), the representative body for all industry super funds in Australia, which described the findings as “deeply flawed”.
The body’s Special Retirement Income Adviser Phil Gallagher said the modelling assumptions made by Grattan were “unrealistic”, as they assume that everyone can top up their super with extra voluntary contributions throughout their working life, and everyone will have a “continuous uninterrupted 37 year working life and contributions” – when many people, particularly women who have taken time out to have children, won’t fall into this bracket.
“Across all age groups just 12.2 per cent of employees with super make additional concessional contributions, but Grattan appear to have assumed that everyone does,” Gallagher explained.
“This loads up contributions and inflates retirement balances significantly. The methodology adopted appears to skew up contributions for lower earners in particular, resulting in retirement balance projections that are potentially inflated by as much as 45 per cent.
“There are many other problems including assuming an unbroken career which is not at all representative for women, and setting retirement benchmarks that are not pegged to community living standards. This lowers the benchmark making surpassing it easier to achieve.”
Elsewhere in the original report, Grattan claims the one area the current retirement incomes system is not working is for low-income Aussies who rent, particularly in Sydney and Melbourne.
It claims it’s likely to get worse for this small segment, as current trends show home ownership for over-65s will decline from 76 per today to 57 per cent by 2056.
The report suggested that retirement incomes should be boosted for the poorest Australians only, rather than across the board – as the majority of Aussies will be “comfortable in retirement”.
One way it could do this, Grattan said, would be to increase the maximum rate of Commonwealth Rent Assistance by 40 percent, while also loosening the Age Pension assets test, which it claims could boost retirement incomes for around 20 per cent of retirees today, and more than 70 per cent in future.
The report also suggested scrapping the legislated plan to increase compulsory superannuation contributions from 9.5 per cent to 12 per cent – saving the government around $2 billion a year.
While it slammed most of the report’s findings, ISA agreed with the suggestion to loosen the assets test, claiming it could “ensure super provides extra income over and above the pension as it was designed to do”.
“Getting the SG to 12 percent is vital to deliver a decent standard of living for working people who have little scope to save for their retirement outside super,” Gallagher said.
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