The Grattan Institute is calling for a radical rethink of superannuation, saying super savings are not as significant for retirement as Australians have been led to believe.
It says new analysis reveals super is actually the least important part of Australia’s retirement income system, and it’s likely to remain that way for some time.
It claims super savings account for only a small portion – about 15% – of the wealth of most households, because even without counting the family home, the average Australian saves as much outside as inside the super system.
This has huge implications for retirement income policy, it warns.
It has released a new paper, called How Households Save for Retirement, that draws on the Melbourne Institute’s Hilda survey and Australian Bureau of Statistics data.
The paper shows that super savings account for only a small portion of the wealth of most households – for most levels of wealth and income – not just older Australians.
“When confronted with facts about the modest contribution of super to retirement savings, many commentators point out that the system is immature,” the Grattan Institute’s director, John Daley, said.
“[And] it will be another two decades before typical retirees will have contributed at least 9% of their wages to super for their entire working lives. But while we might expect younger households to save more in super, and less outside, that’s simply not true.
“Their assets outside are typically as large as their assets inside superannuation, even without counting home ownership. This is so even for households in the 25-to-34 and 35-to-44 age groups who have had high levels of compulsory super for most of their working lives.”
Daley said households held a material portion of their wealth outside the super system so they had the option to use it before they turned 60, and because they were nervous the government may change the rules before they retired.
He said other asset classes, such as negatively geared property, were taxed lightly, and that created attractive vehicles for accumulating wealth outside the super system.
He said Australians needed to stop thinking that “superannuation savings” was synonymous with “savings for retirement.”
Daley warned that ignoring non-super savings could lead policymakers to force people to save too much through superannuation, if the compulsory superannuation guarantee was lifted from 9.5% to 12% of wages, as currently legislated.
Most Australians would rely upon a range of assets and income sources to support their retirement, Daley said, so government shouldn’t expect superannuation alone to provide an “adequate” or even a “comfortable” retirement, as the super industry demanded.
Any “sensible conversation” about superannuation policy must start by recognising how households save for retirement, and why.
“There are powerful vested interests pushing the idea that super equals retirement savings,” Daley said.
“Yet such a view is inconsistent with the facts. Super’s importance to retirement savings has been overblown for far too long.
“As the debate heats up over policy for Australia’s $2tn super sector, recognising what households actually save, and why, would be a big step in the right direction,” he said.
The Coalition concluded a bruising internal fight over its proposed changes to superannuation last month.
It will will no longer introduce a lifetime non-concessional contributions cap of $500,000, backdated to 2007. Instead, it will allow people to make annual non-concessional contributions worth up to $100,000 until their super balance reaches $1.6m.
