Freezing the super guarantee rate at 9.5 per cent means there will be approximately $1 trillion less in superannuation to help supplement or replace the age pension by 2055.
The federal government’s reported plans would reduce national savings by more than $900 billion and cut retirement balances by 20 per cent, according to projections from a joint Industry Super Australia/Rice Warner retirement income model.
Modelling by Deloitte in 2013 showed that even a delay of two years in raising the super guarantee rate could cost $77 billion by 2033.
According to Association of Superannuation Funds of Australia (ASFA) estimates, a retained super guarantee rate of 9.5 per cent would result in around 40 per cent of retirees relying on the full age pension by 2050.
The government expenditure on the age pension would consequently need to rise by approximately 25 per cent.
Also, the proportion of Australians achieving a comfortable standard of living in retirement would fall to around 40 per cent of retirees (from 50 per cent if current increases were maintained).
In a rare moment of solidarity, major peak bodies across the superannuation and financial services industry condemned the idea, and not just for the impact on retirees.
“With our ageing population, these proposals wouldn’t just hit retirees in the hip pocket but reduce capital investment, which in turn will have a negative impact on productivity, real wages and economic growth,” said David Whiteley, chief executive of Industry Super Australia.
“Retirement incomes policy making must be predictable and stable. Especially amid the current volatility of the market, the superannuation system needs stable tax, regulatory and policy settings the public can rely on, placed well beyond the reach of the short-term budget cycle.”
Sally Loane, chief executive of the Financial Services Council, added that future generations should not bear the cost of short-term budget decisions, particularly as Australia has a rapidly ageing community.
According to the Intergenerational Report, the proportion of working-age people to retirees will have fallen substantially from 7.3 working Australians per retiree in 1974–75 to an estimated 2.7 per retiree in 2050.
“That’s simply unsustainable,” Loane said.
“The retirement savings pool must be increased, particularly amongst middle income earners, to reduce the reliance on the age pension. Income support for seniors is costing the government $44.7 billion this year alone and is growing at seven per cent each year.”
Pauline Vamos, chief executive of the ASFA, brought the point back to the purpose of superannuation.
She said if super was to supplement or replace the age pension, to ensure that as many Australians as possible are able to achieve a comfortable retirement, then the scheduled increase in the super guarantee rate was a material factor in allowing the system to meet its goals.
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