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AIST influences policy to make Australia’s
super system fair & sustainable for everyone.
Australia’s superannuation system is increasingly delivering better outcomes for retirees from all walks of life. But more needs to be done to ensure that the system is fair to all and that everyone – regardless of their gender or income level - can maintain their living standards in retirement.
Lifting compulsory employer super contributions (the Superannuation Guarantee rate) to 12 per cent is fundamental to meeting this goal. This is particularly important for people on low incomes, those working part-time or those who have taken time out of paid work as carers.
It is also important for middle-income earners. Analysis shows that if the SG was frozen at 9.5 per cent, a 30 year old male earning $85,000 a year would stand to lose $147,000 from their super by the time they reach retirement. That’s the equivalent of nearly $5,500 extra a year in retirement.
The SG rate – currently 9.5 per cent - is legislated to rise gradually from 2021 until it reaches 12 per cent by 2025. From the inception of our compulsory super system, it was always intended that the SG rate would increase over time to 15 per cent.
Recently, there have been questions raised about the benefits of going to 12 per cent. Many of those opposing the increase don't support the concept of universal super as a public policy to improve the lives of all Australians in retirement.
Many of the claims made to support arguments against 12 per cent super are based on questionable modelling.
Many leading actuaries have criticised the assumptions behind this claim as misleading. For example, modelling by actuarial group, Mercer, using more realistic assumptions shows that 12 percent super would be needed for median income earners to achieve a replacement rate of 68%, which is still below the 70 per cent replacement rate endorsed by the OECD and others.
In 2014, the Abbott government delayed the scheduled SG increase to12 per cent by six years. Since then wage growth has been flat. There is no evidence to support the assumption that workers will get a 2.5 per cent wage rise if the SG timeline is frozen. Indeed, lifting super to 12 per cent super is not about super versus a pay rise, it’s about more super or nothing.
Modelling that suggests the SG should be frozen at 9.5 percent assumes everyone will work until age 67. Based on current trends, this is unrealistic. The majority of Australians currently retire before 67. Research shows that up to 40 per cent of Australians retire involuntarily due to unforeseen factors including ill health, age discrimination, job type and caring demands.
The AIST Mercer Tracker examines how the super system and 12% stacks up on fairness, adequacy and sustainability.
AIST and Mercer developed the Super Tracker in 2016 to assess the progress of Australia’s retirement income system based on the available evidence and to make important contributions to the discussion about the systems ongoing development, including the fairness of the taxation arrangements.
Two key system objectives are considered:
The 2016 report is currently being updated.