Govt pitches SG change as income trade-off

SG increase

The government regards any change to the super guarantee as a trade-off between working and retirement income.

The federal treasurer has pitched any increase in the superannuation guarantee (SG) contribution rate as a trade-off between income while working and in retirement and criticised those who ignored this in their calls for rolling SG rises.

Speaking at the Council on the Ageing National Policy Forum in Canberra late last week, Treasurer Josh Frydenberg said the recent Retirement Income Review (RIR) found there were trade-offs at the core of the retirement income system.

“The retirement income system is by definition designed to provide retirement incomes. But the system cannot solely be about maximising income in retirement. Were it to seek to do so, it would clearly come at considerable expense to individuals during their working lives,” Frydenberg said.

“The review rightly outlined that the system should help people balance their lifetime income. This means balancing the trade-offs between income in someone’s working life and in retirement.

“In this respect, the review highlighted the trade-off between the superannuation guarantee and wages,” he said, adding the RIR found a higher SG contribution would result in lower wages, but this was an expected feature of the system.

“No one should be surprised by this or find it controversial. It was part of the original policy design of the superannuation system. This is not rocket science; anybody who denies that there is a trade-off is effectively a ‘flat-earther’.”

He also flagged that SG increases had a limit and this was an issue for the government to consider in deciding whether to raise the rate before the end of the current financial year.

“It is simply not true, as some would have us believe, that there is virtually no limit to how high the superannuation guarantee can be increased in the name of delivering ever-higher retirement incomes,” he said.

He added that a high SG rate would have a greater impact on lower income earners and the RIR noted that if people used their superannuation assets efficiently and the rate remained at 9.5 per cent, most people would achieve adequate retirement incomes when combined with the age pension.

“This is why, as the Prime Minister and I have said, we must rightly carefully consider the implications of the legislated increase to the superannuation guarantee before 1 July this year, even more so at a time when our economy is recovering from the largest economic shock since the Great Depression,” he said.

He also pointed to a finding from the RIR that many retirees were not spending their superannuation balances before they die and questioned whether increasing those amounts without considering how to better use super in retirement was the best solution.

A Treasury estimation, based on analysis carried out by the RIR, found a combination of the current SG rate and the efficient use of superannuation could boost the median person’s income in retirement by over $100,000 compared to how people typically draw down on their super now, he said.

“To illustrate how significant this finding is, the review also assessed the impact on retirement incomes of the superannuation guarantee rate increasing to 12 per cent, but the same median income earner only drawing down on their superannuation at the current typical rates,” he said.

“In this scenario, the person would only receive $7000 in additional retirement income over their retirement despite having foregone more of their working-life income.

“It is clear that giving more confidence and guidance to retirees to assist them in drawing down on their superannuation savings more effectively is critically important.”

His comments are similar to those made by Superannuation, Financial Services and the Digital Economy Minister Jane Hume in January at same forum where she called on the financial services sector to help promote the more efficient use of retirement income savings. 

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