Shadow treasurer Chris Bowen (Photo: Matt Fatches)
Read the entire interview in the December/January issue of Investment Magazine.
Shadow treasurer Chris Bowen says the opposition won’t backtrack on plans to boost the super guarantee from 9.5 to 12 per cent by 2025, despite a damning report by the Grattan Institute finding that an increase will make little difference in how comfortable most Australians are in retirement.
Bowen said the Labor Party remained immoveable on this policy.
“I am not swayed…I support getting to 12 per cent, and the Labor government will,” he said, in an exclusive interview with Investment Magazine the day after the Melbourne-based think tank called for the government and opposition to dump plans to raise the SG. “There is no magic to the 9.5 figure. It’s not a great figure; 12 was always the intention, 12 was the number that most analysis shows is necessary for adequacy and 12 is what we should get to.”
Grattan’s report Money in Retirement: More than enough, released on Tuesday, stated that the financial services industry “fear factory” had pushed the idea that Australians don’t save enough for retirement, when in fact most retirees today and in the future were likely to be “financially comfortable”, although renters, particularly women, were cited in the report as most in danger of having an inadequate income later in life.
The report’s co-authors, Grattan Institute chief executive John Daley and senior fellow Brendan Coates, wrote that reducing some super tax breaks, loosening the age pension assets test and boosting the maximum rate of Commonwealth Rent Assistance could make a greater impact.
It also called for the retirement age to be increased to 70 and for an across-the-board 15 per cent tax on earnings in retirement.
“Even if governments wanted to boost retirement incomes, the planned increase in compulsory super contributions to 12 per cent is the worst way to get there, Daley and Coates wrote.
“Raising the superannuation guarantee to 12 per cent will reduce wages today and do little to boost the retirement incomes of many low-income workers tomorrow,” they argued.
Bowen said the report incorrectly made the assumption that people would make “voluntary top ups”.
“You can’t just assume women, in particular, won’t be taking significant career breaks, so I think the evidence shows that 9.5 is not enough for an adequate and comfortable retirement,” he said. “We do need to get to 12; of course you need to be trying to improve efficiency and avoiding gouging to maximise retirement incomes by minimising the leakage from the accounts, and governments of both persuasions have been doing this.”
Industry Super Australia called the Grattan Institute’s push to keep the SG at 9.5 per cent “deeply flawed”, agreeing with Bowen that it makes the assumption “everyone can top up their super with extra voluntary contributions”.
“Across all age groups, just 12.2 per cent of employees with super make additional concessional contributions but Grattan appear to have assumed that everyone does”, Industry Super special retirement income adviser Phil Gallagher said.
ASFA on the defensive
The Association of Superannuation Funds of Australia lambasted the Grattan report as an “unprecedented attack on the retirement aspirations of ordinary Australians”.
“This report is about two Australias, where the well-heeled high earners have a fully funded retirement and the rest rely on the state,” ASFA chief executive Martin Fahy said in a statement. “The Grattan Institute wants to dismantle our world-class retirement funding system and replace it with a model that has two-thirds of the population relying on the age pension.”
The report criticised ASFA’s “comfortable” retirement standard, stating that it encouraged the “conventional wisdom” that Australians were not saving enough for their retirement.
“ASFA’s ‘comfortable’ standard would support an affluent lifestyle more luxurious than most Australians currently have during their working lives,” the authors wrote. “And it misleadingly suggests that anyone with fewer resources will have an ‘uncomfortable’ retirement.”
The peak body stated that “spending $43,000 a year for a single person, and $60,600 a year for a couple, does not make you rich”. But Grattan’s economic modelling found that, even after allowing for inflation, most people working today could plan for a retirement income of at least 91 per cent of their pre-retirement income – above the 70 per cent benchmark the Organisation for Economic Co-operation and Development endorses and enough to maintain pre-retirement living standards.
The report stated that pushing for retirement savings “when they are not needed” would mean larger bequests, contributing to increased wealth inequality. “Scrapping the increase to 12 per cent would also save the budget $2 billion a year,” the authors wrote.