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Contributions caps need rework for adequacy

A new report into the adequacy of Australians’ retirement saving has called for a greater examination of the existing contributions caps to formulate a more common sense solution.

The report, “Adequacy and the Australian Superannuation System – a Point of View”, compiled by Deloitte Actuaries and Consultants acknowledged contribution limits were necessary, but at the same time needed to make sense.

“There have been many different regimes for limiting tax-deductible superannuation contributions in the past which have created uncertainty, inequity and discouraged retirement savings,” Deloitte superannuation leader Russell Mason said.

“Australians have tried to navigate multiple reasonable benefit limits, specific contribution limits with some dependence on age, surcharges, and most recently on/off again indexation of the limit.

“The limits are now assessed year by year, with no scope for claw back to compensate for periods out of the workforce – continuing to create the gender divide – or for different life-cycle stages.

“There is limited and inadequate scope to top up super in the years approaching retirement to finance a comfortable lifestyle.”

Primary author of the report Wayne Walker described the current system as one where “if you fall behind, then you are left behind”.

The paper on the whole concluded Australians needed to work longer or contribute more if they wanted their superannuation benefits to properly fund their retirement.

Deloitte’s own calculations concluded an individual would need to contribute anywhere between 5.5 per cent and 7.5 per cent above the superannuation guarantee of 12 per cent to self-fund a comfortable retirement.

The accounting firm estimated the lump sum needed for a modest lifestyle in retirement was $340,000 for a man and $370,000 for a woman, with the average matching account balances being $114,000 and $94,000 respectively.

“The system in its current form will not deliver adequacy,” Walker said.

“The industry needs to develop products that assist individuals to better manage investment, inflation and longevity risk, and support those products by providing members with knowledge to make informed decisions.

“And finally, individual Australians must stand up and become involved in their superannuation so that they get the most out of the system and prepare themselves for their retirement.

“The bottom line is that if we leave the system in its current form, members will need to contribute more – much more – to achieve even a modest level of financial security in retirement.”

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