At the same time as the Government prepares to embark on its Retirement Income Review, new modelling from the Australian National University (ANU) has suggested lifting the superannuation guarantee (SG) needs to be based on a firm decision about the purpose of superannuation as a pension replacement.
The modelling suggests that lifting the SG from the current 9.5% to 12% can be justified if the policy objective involves either replacing the Age Pension or requiring members to self-insure against various risks.
The modelling, undertaken by Guarav Khemka, Yifu Tang and Geoff Warren from ANU’s College of Business and Economics, and the authors stated that one of the key findings of their research was that there was no single SG level that would suit all and it raised questions about whether it made sense to require everyone to save more by imposing a higher SG just because it suited some.
They said that it was in these circumstances the Government needed to specify the objective of superannuation – “whether the aim is to replace the Age Pension where possible”.
The authors also argue that a decision needed to be made about how to trade-off gains and losses between members stating: “The variable impact of the SG across members should be addressed, noting we find that an increase could be relatively detrimental for low income earners once the Age Pension and tax impacts are considered”.
They also noted “asymmetry between setting the SG higher versus lower in circumstances where “members can do nothing if the SG is set too high, but can contribute more if it is set too low”.
“However, the idea of retaining a lower SG for flexibility might be balanced against the reluctance to contribute beyond the mandated minimum,” it said.