Will super changes really see Aussies lose $30k?

Australia’s savers would be $30,000 worse off if a planned increase to the percentage of salary sacrificed for superannuation went ahead, a major thinktank is warning.

Currently, employed Australians are required to sacrifice 9.5 per cent of their wages to put into their superannuation accounts. However, both sides of government have agreed to increase this amount, known as the super guarantee, to 12 per cent.

The idea is to boost the amount of superannuation Australians have when they retire, but, warns the Grattan Institute, this policy will only serve to hurt Australians during their working years.

In a new report published on Wednesday (10 July), Grattan fellow Brendan Coates and associate Owain Emslie claim increases in compulsory super payments cost wage increases.

And, they argued, for low- and middle-income earners, the relatively low increase in superannuation come retirement will be significantly offset by smaller pension payments.

“The reality is that most Australians can already look forward to a better living standard in retirement than they had while working – even if they interrupt their careers to care for children. Workers with interrupted employment histories lose super in retirement, but get larger part-pensions,” they explained.

“The poorest Australians get a clear pay rise when they retire: the age pension is worth more than their after-tax income while working.”

Increasing the superannuation guarantee wouldn’t significantly benefit workers in retirement, but would see smaller pay packets during their working years. The Grattan Institute estimates that a 30-year-old worker on $58,000 would lose 2.5 per cent of their wages each year under a higher super guarantee, but would get less than 1 per cent in retirement.

“The big winners from higher compulsory super would be the wealthiest 20 per cent of Australian earners, who would benefit from extra super tax breaks and would be unlikely to receive the age pension anyway,” they added.

While budgetary savings in funding the pension may justify increasing the super guarantee, the Grattan Institute researchers warned that the tax breaks on the extra money flowing into superannuation would undo this benefit.

Superannuation groups hit back

However, actuarial firm Rice Warner today hit back at the report which it claims is misleading.

Rice Warner said the issue isn’t with the level of superannuation, but with the way the pension is asset tested.

“Further, Grattan’s conclusion that superannuation comes at a net cost to the budget is wrong because it assumes that the measured tax concessions on a ‘revenue-foregone’ basis (now labelled ‘tax benchmark variations’ by Treasury) represent the cost of a change of policy to the Budget. Nothing could be further from the truth,” the firm wrote, arguing that revenue foregone by reducing taxable income is not the same as revenue lost or gained.

“Increasing the superannuation guarantee provides a boost to those on lower incomes with little (if any) tax concessions, though these people will still expect to receive an Age Pension. It could be argued that some people on very low incomes would prefer salary rather than the superannuation guarantee, but that could be achieved through improved benefits under the current tax and transfer system.

“Those caught in the means test thresholds will benefit from tax concessions but may similarly miss out on some Age Pension benefits due to the operation of the means tests which needs review.”

The Association of Superannuation Funds of Australia (ASFA) has also condemned the report, branding the Grattan Institute’s conclusions as tedious.

ASFA CEO Dr Martin Fahy said the research is selective modelling based on “unsound assumptions”.

He said that working Australians would be in the same position either way: “The increase in personal tax, withdrawal of family tax benefits and child-care subsidies would erode most of the increase [in wages, if the super guarantee wasn’t increased], leaving people no better off in working life and worse off in retirement.”

Additionally, Fahy said Grattan hadn’t considered a big difference between superannuation and the pension: superannuation is more than the income provided from its investments, it’s also a sizeable pool of savings that retirees can also use.

“Good public policy will always benefit from lucid, rigorous research and modelling. However, the Grattan Institute’s latest output is based on unsound assumptions regarding average earnings, working patterns, the future rate of the Age Pension, how the means test for the Age Pension works, and most importantly working Australians’ aspirations for a dignified retirement,” Fahy said.

The government is currently gearing up for an independent inquiry into retirement incomes.

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