Retirement, Superannuation

Think tank sparks war of words on SG rise

increase superannuation guarantee rate

Industry groups have rejected new modelling that claims an increase in the superannuation guarantee rate would have little effect on retirement income.

Superannuation groups have claimed modelling used by an independent think tank to show that an increase in the superannuation guarantee (SG) rate to 12 per cent will reduce the wages of average Australians is flawed and contradictory.

The Association of Superannuation Funds of Australia (ASFA) and Industry Super Australia (ISA) made the comments in response to an article released by the Grattan Institute saying a typical Australian worker would lose $30,000 over their lifetime as a result of lifting the SG from 9.5 per cent to 12 per cent.

The article, which the institute published online, stated that any increase in compulsory super to achieve higher retirement incomes would ignore the income workers had to forgo to receive that income.

“Compulsory super contributions are paid by employers, but they appear to come out of funds the employers would otherwise have spent on wages. This means increases in compulsory super come at the expense of wage increases,” the article said.

According to calculations made by the institute, increasing compulsory superannuation to 12 per cent by 2025 would reduce workers’ incomes by $20 billion a year and “all of the extra income from a higher super balance at retirement would be offset by lower pension payments, due to the pension assets test”.

“Pension payments themselves would also be lower under a 12 per cent superannuation regime. They are benchmarked to wages, which would be lower if employers have to put more into super,” the article added.

“We calculate that, after adjusting for inflation, the typical (median) 30-year-old Australian worker earning $58,000 today would lose about 2.5 per cent of wages each year and get less than a 1 per cent boost to retirement income.”

ASFA chief executive Dr Martin Fahy said the modelling was inaccurate and based on unsound assumptions regarding wages, work patterns, the rate of the age pension and how it is means tested.

“The Grattan Institute’s latest missive on retirement funding continues the pattern of selective and misleading modelling that seeks to undermine a retirement system that is globally acknowledged as one of the best in the world,” Fahy said.

He added the institute had incorrectly assumed that by not increasing the SG rate to 12 per cent, a 2.5 per cent wage rise would instead flow to all workers in full, when any increase would be affected by rises in personal tax and the withdrawal of family tax benefits and childcare subsidies.

There was an incorrect view that raising the SG would not make a difference to retirees when modelling showed a person drawing the median wage of $60,000 would see an increase in savings at retirement from $299,000 to $368,000, he pointed out.

In responding to the article, ISA said the Grattan Institute had contradicted itself after releasing research in June that claimed an SG increase to 12 per cent would not ease the burden on the age pension and “today they are claiming that an increase will leave workers poorer because it will reduce the amount they are entitled to through the pension”.

“Both can’t be true. Not only does one completely contradict the other and make a mockery of the claims, the modelling Grattan relies on to peddle these myths is deeply flawed,” it said

“Under their modelling, the effect of the superannuation guarantee on wages, pension indexation and taxation is incredibly overstated, and assumes women, low-income and self-employed workers don’t exist.

“They double count salary sacrifice contributions and overestimate voluntary contributions and the amount of age pension paid. In short, they are wrong.”

Actuarial firm, Rice Warner also responded to the modelling claiming an increase in the SG rate would not only benefit workers and retirees but would have wider benefits for the aged care sector.

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