The federal government’s review of the retirement income system needs to examine whether compulsory superannuation should continue to be an essential pillar of retirement income, an industry consultant has said.
According to Chartered Accountants Australia and New Zealand (CAANZ) superannuation and retirement incomes principal consultant Tony Negline, the review, which is expected to address the need for further compulsory employer super increases before the next superannuation guarantee (SG) rise in July 2021, should consider whether compulsory super is needed at all.
“The SG rate and who needs compulsory super should be examined. We should examine whether low to middle-income earners actually need compulsory super, especially given it suppresses their take-home salary and also the current age pension offers a very good replacement option,” Negline said in a blog post on the CAANZ website.
He pointed out the factors instrumental in the implementation of compulsory superannuation decades ago may not have the same relevance today.
“Compulsory super was meant to address concerns about population ageing, with people living longer, the number of retirees rising rapidly compared with those in the workforce, and an increasing number of workers seeking to retire as early as possible,” he noted.
“Has our population aged according to expectations and how have expectations for our future demographics changed over the past 25 years? Are older workers still moving into early retirement?
“And we should investigate how much retirees actually spend in retirement. This data will be useful in determining the most suitable replacement rate, which then feeds into how much retirement savings is appropriate.”
While he agreed it was right to take a closer look at the superannuation system, he said it was not possible for changes to be effective unless the current context of the industry was properly understood.
“The key point is that the system is not perfect, far from it. But before we make any changes, we need to make sure we understand what we have achieved and what problems we are now trying to solve,” he added.
“We can’t assume the problems we were trying to solve in the early 1990s retain the same characteristics today. We need to bravely ask the hard questions and seek the right answers.”
Earlier this week, Heffron director Martin Heffron said the retirement income review needed to examine if tax concessions given for superannuation were being used to strengthen retirement income streams or to fund lump sums that pay down debts after age 65.