More workers are retiring as renters than in the past and, of those who do buy property, there is a rise in people retiring with mortgages still to be paid off. Then there’s the issue of credit being harder to access for retirees in a post-banking royal commission world.
The review is looking at whether other countries use methods that could be beneficial in Australia; the roles of the government, private sector and individuals; how much people need for an “adequate” retirement; whether the system is fair; and whether it helps or worsens inequities during working life.
The superannuation guarantee
One of the hot-button topics of the retirement debate is what percentage of income should be dedicated to super. Under the current legislation, the minimum employer contribution of 9.5 per cent is set to rise to 12 per cent by July 2025.
The next increase, to 10 per cent in 2021, is expected to happen after the next election, potentially marking it as a major campaign topic. It has been opposed by half a dozen Coalition MPs who believe lower wage growth means employees need the funds now, as opposed to when they retire.
Think tank the Grattan Institute has undertaken research that finds the majority of super payments end up limiting workers’ future pay increases and, for many, this means the money they have available through their working life is reduced.
Superannuation fund groups including Industry Super say the difficult financial situation facing many retirees means there’s a clear case for a rise in the guaranteed employer contribution.
Research from Industry Super found that while the majority of workers expected to have a comfortable life after retiring, four in 10 retirees admitted to living on a tight budget to afford necessities. A decade ago this figure was three in 10. The research, undertaken by boutique agency Susan Bell and surveying 730 industry fund members, was submitted to the review this week.
The Australian Council of Trade Unions is also backing a hike in compulsory payments to 15 per cent.
Think tank Per Capita said their analysis of data since the guarantee was frozen in 2014 found that both take-home pay and super contributions had decreased.
Making the system fair
Of the submissions that delved into concerns about equity in the superannuation system, most made the point that not everyone gets a good deal, with women and Indigenous Australians among those retiring with lower levels of funds.
However, there is not widespread agreement about how to shift the system to make it more suitable for groups that are left with less in their super.
A KPMG submission pointed to the latest government figures showing a median superannuation balance for men around retirement age at $183,000, compared to women’s at $119,000. The consulting firm suggested making the super guarantee apply to parental leave payments, a call echoed by consumer advocates and the Association of Superannuation Funds of Australia.
Several submissions recommended removing the $450-a-month threshold before which superannuation payments are made, to help low-income earners.
Overhaul or adjustment?
SMSF Association chief executive John Maroney, whose organisation represents the self-managed super fund sector, has criticised the system for focusing too much on the accumulation phase rather than retirement.
“Current issues have resulted in a lack of engagement from Australians and a lack of incentives to appropriately save for retirement,” he said. More than 1 million Australians have a self-managed fund, he added.
Maroney criticised superannuation policy for being too complex, leading to a poor level of understanding of how it works and to concerns about uncertainty over regulatory change.
The review panel is due to present its final report in June, after which the government has some tough political decisions to make, said Australia’s first minister for superannuation, Nick Sherry.
Sherry hopes the review will deliver a simpler and more robust system. He’s a staunch advocate for the removal of insurance (such as income protection or disability insurance) to which super funds often sign customers up. Sherry insists it’s over-complicating the system.
The former Tasmanian senator says while superannuation is far from perfect, he’s proud to have been involved. “The bottom line is that without super, seven out of 10 Australians would have zero at retirement other than the age pension. Today, whether you look at average or mean, they do have a level of money that makes life easier in retirement,” he said. “And that’s a good thing.”
Jennifer Duke is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra.
Charlotte is a reporter for The Age.