3 June 2019
Michael Roddan – Reporter
The age pension will be the “primary source” of income for most Australians if the government ditches plans to force workers to hive off more of their wages into superannuation, according to research from the nation’s top retirement income expert.
Michael Rice, chief executive of actuarial firm Rice Warner, will today present a paper to the Actuaries Institute annual summit in Sydney urging the government not to derail the planned increase in the super guarantee from 9.5 to 12 per cent.
The paper, prepared by Mr Rice, Australia’s foremost actuary, and Rice Warner head of superannuation Nathan Bonarius, will be launched as the government prepares to build a case to potentially scrap the scheduled increase in the guarantee rate with a wide-ranging review of the adequacy of the $2.7 trillion super system, as recommended by the Productivity Commission.
An inquiry will also focus on generous tax concessions built into the system, which are projected to cost the federal budget more in foregone revenue than the system saves in age pension outlays until at least 2070.
There has already been fierce resistance from the funds management sector and the ACTU, which have been campaigning for a rate of at least 15 per cent.
Josh Frydenberg says the government has “no plans” to freeze the rate, while Labor has been vocal about any attempt to stop the planned increase in the amount of money Australians are forced to put away until retirement.
“If the SG was left at the current 9.5 per cent the age pension, rather than the SG, would be the primary source of income for most Australians,” the Rice Warner paper said. “An SG below 10 per cent would not be an optimal solution.”
According to analysis of different contribution rates, Mr Rice said a rate of between 10 and 15 per cent would provide a standard of living in retirement that was adequate “for most while not being excessively generous to too many”.
However, a higher rate would need to be paired with lowering some of the tax concessions for wealthier Australians.
Under their scenario, about 15 to 20 per cent of the population would be supported by welfare and social security while between 35 and 40 per cent would have enough savings to allow them to partly supplement their income with the age pension until later in life, when they would become more reliant on the government payment.
Wealthier retirees, accounting for between 40 and 50 per cent of the population, should be self-sufficient, Rice Warner said.
“An SG below 10 per cent would result in median income earners relying on the age pension for most of their retirement income,” the paper said.
“While this would provide a comfortable living standard for middle-income Australians, it’s not a desirable result if we want people to be self sufficient in retirement. Further, many people living on a full age pension (particularly renters) are living in poverty, indicating the age pension by itself is not enough.”
The Grattan Institute has found that, by the time it is fully implemented in 2025-26, a 12 per cent super guarantee would strip up to $20 billion a year from workers’ wages, or nearly 1 per cent of GDP.
The think tank has argued a higher super rate would mostly benefit wealthier Australians, punish poorer workers and cost the budget an extra $2bn a year in tax concessions.
Michael Roddan – Reporter
Michael Roddan is a business reporter covering banking, insurance, superannuation, financial services and regulation.