SG policy needs perspective

super guarantee policy

A flexible and common-sense approach towards determining super guarantee policy has been called for by a specialist actuarial firm.

Consulting, research and actuarial firm Rice Warner has expressed its support for the super guarantee (SG) to move to 12 per cent and has encouraged the federal government to take a flexible and common-sense approach in implementing this change to the country’s retirement savings system.

“It still makes sense for the SG to go to 12 per cent, but we need to recognise that wage rises are likely to be low for a few years and any increase will cut into disposable income for many people,” Rice Warner said.

“We do want certainty and it would be better for the government to call for another delay rather than cutting it off altogether at a lower level.”

The actuarial firm said it agreed with the need for more individuals to be able to self-fund their own retirement to lessen the reliance on the age pension and to this end an SG rate of between 10 per cent and 15 per cent would help in achieving this objective, with the highest rate being the most effective.

However, it acknowledged practical considerations had to play a part in setting the level of compulsory super contributions with the current economic effect of the coronavirus pandemic further complicating the situation and dictating a new approach be adopted.

“It is time for rational holistic thinking on the subject. Society could accept a delay in these difficult times, but why not think more laterally and tie any future SG increases to the forthcoming personal tax cuts to minimise the impact on disposable income,” it said.

The firm is adamant the effectiveness of the entire framework could not be questioned simply because superannuation savings are now likely to deliver lower returns in the short to medium term.

“Even if returns only match wage inflation, it will be beneficial for individuals and governments alike. If we do have a lengthy period of poor returns from a global recession, that will be unfortunate. However, some would argue that the forced saving combined with the tax concessions for superannuation will still make pre-funding viable for consumers,” it said.

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