Increasing SG ineffective in boosting retirement income

4 March 2020

Relaxing the taper rate on the Age Pension assets test does more to help people in the middle and those with broken work histories than increasing the superannuation guarantee (SG), the Grattan Institute believes.

The Grattan Institute used its submission into the Retirement Income Review to further emphasise its belief that the SG was an ineffective means to boost retirement incomes.

The Grattan submission had already drawn a withering response from the Association of Superannuation Funds of Australia (ASFA) chief executive, Martin Fahy, who described the Grattan Institute as being “anti-retirement”.

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“We recommend that the Age Pension be withdrawn at a rate of $2.25 per fortnight for each $1,000 of assets above the asset free area, rather than the current rate of $3 per fortnight. For middle and high-income workers, this change would have a bigger impact on retirement incomes per government dollar expended than increasing the super guarantee. The wages of low-income workers would not be reduced,” the submission said.

“This change would cost the budget about $750 million a year. Relaxing the Age Pension taper rate would also do more than raising compulsory super to help the retirement incomes of middle- and high-income women who take significant career breaks.

“And it would also extend the number of higher-income Australians that are insured against longevity and under risks as more older Australians become eligible for a part Age Pension.”

The submission said increasing the SG to 12% would reduce wage, do little to boost retirement income of low and middle-income workers, and lower pensions for current and future retirees by suppressing the value of the wage-benchmarked Age Pension.

“Pushing for more retirement savings when they are not needed is simply a recipe for larger bequests, leading to widening wealth inequality over time as those unused savings are passed on to future generations,” it said.

The Grattan Institute noted an increase in rent assistance would do “far more” to boost retirement income of renters, including many high-income renters.

It said increasing Commonwealth Rent Assistance and relaxing the taper rate would be more effective in boosting retirement incomes than increasing the SG without forcing low and middle-income Australians to save for a higher standard of living in retirement than they enjoy beforehand.

It also said a SG increase would not do much to close the gender gap in retirement incomes.

“Recent Treasury advice suggests that increasing compulsory super would widen the gender gap in superannuation savings,” it said.

“Closing the gender gap in lifetime earnings would do the most to improve the retirement savings of women.

“This would require a range of policy responses that go well beyond the scope of retirement incomes policy, including cultural changes to promote gender wage equality and achieve a better balance in caring responsibilities between men and women, as well as measures to further improve the workforce participation of women.”

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