The super system has been instrumental in improving the sustainability of the age pension and boosting household savings, according to a new report from the Association of Superannuation Funds of Australia (ASFA).
The ASFA “Super and the Australian Economy” report found the Australian Prudential Regulation Authority-regulated superannuation system improved the sustainability of the age pension and removed pressure from the federal budget to fund it.
“Notwithstanding the fact that the proportion of Australians of age pension age will increase over coming decades, the superannuation system will help contain future age pension expenditure,” the report noted.
“As time goes on, people who reach retirement will have received SG (superannuation guarantee) contributions at higher rates, for longer periods of time, and receive higher investment income on higher balances (than otherwise would be the case). This will lead to higher balances for workers at retirement.”
The report predicted commonwealth spending on the pension would remain low and stable in the coming decades and will fall from 2.3 per cent of gross domestic product (GDP) in 2022/23 to 2 per cent of GDP over the period to 2062/63, assuming the SG rate was increased to 12 per cent.
“Overall, the total cost of the age pension and tax concessions for superannuation are projected to rise marginally – from 4.2 per cent of GDP to 4.4 per cent of GDP by 2062/63. This is remarkable given the expected ageing of Australia’s population.” it added.
“This means that the cost to government of Australia’s retirement income system will remain more affordable than almost every other Organisation for Economic Co-operation and Development country.”
The report also noted the superannuation system had helped boost household savings by over $500 billion.
The paper cited work undertaken by Treasury that estimated the boost to national savings was at around 3 per cent of GDP as the SG rate rose to 12 per cent.
“Broadly speaking, studies find that for each dollar of savings via compulsory superannuation, net saving by the household sector is around 60 cents,” it stated.
“Using data for compulsory super contributions, and assumed parameters for the net saving effect, ASFA estimates that Australian households have $500 billion in additional savings that they otherwise would not have saved (via superannuation or otherwise) due to compulsory super.”