Of the many topics discussed about superannuation there is one issue that is more relevant than any other – adequacy. Despite all of the talk about different elements of the super system, the number one objective is to have a good proportion of the Australian public save enough to completely fund their own retirement.
With this in mind, some of the recent opinions and research regarding our retirement system have been quite unbelievable and unfathomable.
The first of these was the Grattan Institute’s paper published in November suggesting concessional contributions caps should be reduced to $11,000 a year. Its justification was that 80 per cent of the contributions above this level come from people who have accumulated assets, rendering them ineligible for the age pension.
So what are they telling us? We should give up on the remaining population and any hope they might have the chance to fund their own retirement?
The opinion is contrary to just about every other in the industry that is continually calling for an increase rather than a decrease in the contributions caps. Indeed some trains of thought suggest at the current cap levels individuals would have to make payments to their super to the full extent of the concessional contributions caps to give themselves any chance of funding a comfortable retirement for themselves.
The Grattan Institute’s recommendation seems so ridiculous it hardly justifies discussing.
The other piece of research was released last month by the CSIRO. The main takeaway here was a lot of Australians had too much saved to fund their retirement. In effect retirees have been shown to be quite conservative in their spending and, because the taxation of superannuation is so generous and individuals are keen to take advantage of the situation, they end up with accumulated unused retirement savings and this results in them having more wealth than when they first retired.
The CSIRO said the research is supposed to encourage more investigation into spending in retirement and the appropriate investment products individuals should use during this life stage.
But again it must be questioned as to what kind of logic is being applied and what outcome is being encouraged. We are forever being warned about longevity risk, the possibility of running out of money before we die, and sequencing risk, where retirees might run out of money due to the reduction of their assets as a result of market downturns.
The only way to guard against these unwanted outcomes is naturally to make sure we have more than enough saved to literally last a lifetime. The market volatility experienced at the start of this year must surely discredit any argument Australians are saving too much, particularly when the headlines associated with market falls always highlight how much the value of people’s superannuation has fallen.
Furthermore, are the people from the CSIRO suggesting we can accurately predict when we are going to die so we can better marry up how much we save to fund our retirement? I doubt there are any mathematical measures that can achieve this.
And what is so bad about having saved too much and popping off with some assets left in our superannuation accounts? As pointed out earlier, this wealth will be passed on to nominated beneficiaries. Some recommendations of late have been for the use of superannuation balances to fund housing requirements of individuals, in particular first homebuyers. Could these excess savings passed on to others not eventually see this scenario come to fruition, perhaps not achieved the way intended, but achieved nonetheless?
Neither of these points of view has offered anything useful to the debate and have both proved to be distractions that can only be described as crazy talk.