Research house Rice Warner’s latest financial modelling into retirement savings adequacy has concluded the superannuation guarantee (SG) levy must be increased from its current level of 9.5 per cent to allow most Australians to have a sufficient amount of money saved for their post-working years.
Through its analysis, Rice Warner determined the theoretical range for the SG should be between 10 per cent and 15 per cent, assuming the age pension system continues to be one of the three pillars of the retirement savings system.
The research house argued if the SG fell within this band, an adequate retirement income for most Australians could be achieved.
“It can be shown that a higher level will provide a more comfortable majority for a greater number of retirees. However, higher levels will also require adjustments to tax and contribution thresholds in order to moderate the benefit for those in the top income deciles,” it said.
With regard to determining a definitive percentage for the SG, it cited a number of variable factors making this task too difficult at a particular point in time.
Elements the research house identified as influencing the exact SG level that would be appropriate included rates of return that would dictate adequacy being reached with lower superannuation contributions, future changes to the age pension means test, tax concessions, and fees and insurance premiums that could erode an individual’s retirement savings.
However, it was adamant the current SG level, being one below 10 per cent, cannot provide most Australians with a comfortable retirement without a heavy reliance on a government pension.
“While this would provide a comfortable living standard for middle-income Australians under many scenarios, it’s not a desirable result if we want people to be self-sufficient in retirement. It does not meet the primary objective of the superannuation system that is about to be legislated,” it said.
“Further, many people living on a full age pension (particularly renters) are living in poverty, indicating that the age pension by itself is not enough.”
As such, it stated the age pension would end up being the primary source of retirement income for most Australians should the SG remain at 9.5 per cent.
The modelling comes after the Association of Superannuation Funds of Australia called for the SG to be increased to 12 per cent in March this year.