Former Treasurer, Peter Costello, claims that Australia’s compulsory superannuation level of 9.5% will not generate anywhere near enough funds for retirement, even for workers that contribute for the entire of their working lives. From The ABC:
Former treasurer Peter Costello says Australians will not have enough money to become self-funded retirees if they rely solely on employer contributions to superannuation.
“If you truly want to become independent of the government, a self-funded retiree, live off superannuation, you’re going to have to put your own money in,” Mr Costello told 7.30. “The occupational superannuation is not going to do it”…
“For most people they don’t choose to go into it. The money is taken out of their wage by law. They know they can’t get hold of it for 20 or 30 or 40 years,” he said.
“They don’t feel as if it’s theirs, they don’t feel as if they own it.
“The government concentrated on getting money into superannuation by law, but didn’t show much interest in what happened to it. Basically said, now it’s someone else’s responsibility.”
Meanwhile, Professor Susan Thorp from the University of Sydney Business School believes people would need to contribute 18% of their wages to superannuation to become self sufficient in retirement:
“If it were the case that people actually wanted to become entirely independent of the age pension, for example, they would probably need to start contributing about 18 per cent at the beginning of their working life and contribute that all the way through their working life,” she told 7.30.
“Most of us are, I think, probably realistically not prepared to do that”…
According to the Department of Social Services, 42 per cent of Australian retirees receive the full age pension. Since 1997 the proportion of Australians receiving full or partial age pensions has fallen from 79 to 70 per cent.
What a damning indictment of the system. Because of the exorbitant fees and gouging, as well as superannuation concessions being outrageously skewed towards higher income earners, compulsory superannuation is badly failing the ordinary Australian worker.
That said, the answer to the problem is not to double down and increase the superannuation guarantee, since this would rob workers of disposable income (lowering take home pay) and would blow a massive hole in the Budget (since super concessions cost the Budget more than they save in pension costs).
Rather, the solution is to address the inequities and inefficiencies rampant in the current systm.
This should start with a warts-and-all review into compulsory super, as recommended by the Productivity Commission’s (PC) final report on the efficiency and competitiveness of Australia’s $2.8 billion superannuation system:
RECOMMENDATION 30: INDEPENDENT INQUIRY INTO THE RETIREMENT INCOMES SYSTEM
The Australian Government should commission an independent public inquiry into the role of compulsory superannuation in the broader retirement incomes system, including the net impact of compulsory super on private and public savings, distributional impacts across the population and over time, interactions between superannuation and other sources of retirement income, the impact of superannuation on public finances, and the economic and distributional impacts of the non-indexed $450 a month contributions threshold. This inquiry should be completed in advance of any increase in the Superannuation Guarantee rate.
Labor needs to ditch its 12% compulsory super fetish and proceed with the PC’s recommended review as one of its first acts in government.