Those are the findings from Treasury's Retirement Income Review, released publicly today.
The mammoth 600 page report found that "the weight of evidence suggests the majority of increases in the superannuation guarantee come at the expense of growth in take-home wages".
The superannuation guarantee is the minimum amount your employer is required to take out of your earnings to contribute towards your super.
The rate is currently 9.5% of your base salary but is due to gradually increase to 12% by 2025.
| Period | General super guarantee (%) |
|---|---|
| July 1, 2002 - June 30, 2013 | 9 |
| July 1, 2013 - June 30, 2014 | 9.25 |
| July 1, 2014 - June 30, 2021 | 9.5 |
| July 1, 2021 – June 30, 2022 | 10 |
| July 1, 2022 – June 30, 2023 | 10.5 |
| July 1, 2023 – June 30, 2024 | 11 |
| July 1, 2024 – June 30, 2025 | 11.5 |
| July 1, 2025 – June 30, 2026 | 12 |
Source: ATO
The report found that raising the superannuation guarantee to 12% will ultimately cut a workers' lifetime income and disadvantage lower income earners.
"A rate of compulsory superannuation that would result in people having an increase in their living standards in retirement may involve an unacceptable reduction in living standards prior to retirement, particularly for lower-income earners," the report said.
"This is based on the view, supported by the weight of evidence that increases in the SG rate result in lower wages growth, and would affect living standards in working life."
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The findings of the report are consistent with recent Reserve Bank modelling which revealed that lifting the superannuation guarantee to 12% will strangle wages growth by 1.75%.
Yet 75% of Australians are in support of the superannuation rate rise, at least according to a nationwide survey conducted by the Association of Superannuation Funds of Australia (ASFA).
The Treasury review found that raising the superannuation guarantee to 12% will cut a workers' lifetime income by as much as 2%.
“Maintaining the SG rate at 9.5% would allow for higher living standards in working life. Working-life income for most people would be around 2% higher in the longer run," the report said.
The report also found that if the mandated super guarantee increases were to go ahead, it will result in higher-income earners receiving larger tax concessions.
"This would not occur if the SG rate remained at 9.5%," the report said.
"Further calculations show that workers bear between 71% to more than 10% of the cost of increases to the SG through lower wage growth, depending on the time period considered."
Home ownership key to a secure retirement
The report also looked at policies that would push more Australians to use the equity in their family homes to fund their retirement, rather than relying on compulsory super contributions.
"Homeowners also have the opportunity to access the equity in their home to supplement retirement income and manage longevity risk, although few currently do so," the report said.
"If this potential were realised, housing would take on an even more important role in the retirement income system."
The family home is regarded as the most significant form of voluntary savings for most Australians as it greatly reduces accommodation expenses in retirement.
"On average, equity in the family home represents the largest share of net wealth for Australians aged 65 and over," the report said.
It highlights reverse mortgages as a way for homeowners to tap into their equity to fund their retirements.
"Few retirees use the equity in their home to support their standard of living in retirement."
"The options available to do so include reverse mortgages, equity release schemes, home equity loans and downsizing. Reverse mortgages are the main product available, but usage is low."
Australia has a very limited number of reverse mortgage providers, with only two writing 80% of new loans from 2013-2017 according to the report.
It also said drawing down on existing assets in retirement can have a "bigger impact on improving retirement incomes than changes to the superannuation guarantee rate".
"Without improving the way retirees draw down their assets, extra contributions to superannuation will not result in most retirees maintaining their living standards.
"Fully drawing down superannuation can substantially boost retirement incomes, without having to increase contributions. Other options to improve retirement incomes include strategies and products to achieve greater certainty around income or drawing on equity in the principal residence."
Dr Joshua Funder, Chief Executive Officer of Household Capital, said prospective retirees need to better understand how they can make the best use of their retirement savings.
“For most Baby Boomers, voluntary savings outside of superannuation means the equity in their home," Mr Funder said.
"Australian homeowners entering retirement today only started to accrue three percent superannuation halfway through their working lives - it’s simply not enough to fund more than 25 years in retirement.
"Available home equity can double the amount of their superannuation and help fund their retirement. Accessing home equity can offer a responsible, long-term solution to allow current retirees to boost their retirement funding.”
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