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- A 2025 increase to superannuation could be scrapped after an independent review found current policy settings are working well enough
- The Morisson government has committed to boosting super from 9.5 per cent to 12.5 per cent by 2025, but could backflip on this position based on the long-awaited Retirement Income Review
- The review found a better understanding of the current super system would be more effective in the long run than a simple super hike
- In fact, raising super levels will cut around 2 per cent off of lifetime wage earnings for the average Australian
- As such, the report suggested that programs to increase voluntary savings and financial literacy among Australians would be a better option for long-term security
- Opposition Leader Anthony Albanese said Labor supports the superannuation increase and will resist the Coalition’s “ongoing attack” on superannuation
- The Retirement Income Review did not make any formal recommendations, but Federal Treasurer Josh Frydenberg said the government will carefully review the report’s observations
A 2025 increase to superannuation could be scrapped after an independent review found current policy settings are working well enough.
The Morrison government has committed to boosting super from 9.5 per cent to 12.5 per cent by 2025 in a move backed by the opposition.
However, the Coalition is now paving the way for the super boost to be tossed after the long-awaited Retirement Income Review found Australia’s current retirement income system to be “effective, sound and … broadly sustainable”.
The income report
The 600-page report does not make formal recommendations, but rather lays out observations about the current state of Australian super and what a 2025 boost would look like.
While the review said there is certainly room for improvement in some areas, it said this needs to come mainly in the form of understanding how the Australian super system works and how retirees can make the most of it.
“Complexity, misconceptions and low financial literacy have resulted in people not adequately planning for their retirement or making the most of their assets when in retirement,” the report said.
In particular, the report said a major misunderstanding is the view that “retirement income” involves the return from investing superannuation balances as opposed to drawing down those balances to fund living expenses in retirement.
Moreover, Federal Treasurer Josh Frydenberg explained that raising superannuation will actually cut around 2 per cent off of lifetime wage earnings for the average Australian. Low-income workers would be hit the hardest. He said people will be better-off if super wasn’t increased.
“Working life income, for most people, would be around 2 per cent higher in the long run,” the Treasurer said, quoting the report.
The current super system
Australia’s current superannuation system is based on three pillars: the Age Pension, compulsory superannuation, and voluntary saving.
The Age Pension is designed to provide a safety net for Australians who retire with a small superannuation balance, while compulsory superannuation forces middle income earners to save for retirement.
Efficient voluntary saving, then, can help ensure retirees are adequately equipped to deal with unexpected curveballs and rainy days. Combined with homeownership, this pillar of the system is key to financial security in retirement.
In light of this, Treasurer Frydenberg suggested that more effective management of the current super system will be better for Australians in the long-run than a simple super hike.
“The weight of evidence suggests an increase in the Superannuation Guarantee rate will result in lower wages growth, impacting standards of living,” he said.
Importantly, the review found Australia’s current income system is “well-placed” to respond to unprecedented economic challenges brought about by COVID-19.
Labor opposed
While, at this stage, no changes to the legislated super hike have been formally confirmed, Opposition Leader Anthony Albanese said Labor will fight against the Coalition’s “ongoing attack” on superannuation.
“They look for any excuse to break the promises, as they have done in each of the previous two terms of this Coalition Government,” the Opposition Leader said.
“The fact is, we have a legislated increase for universal superannuation to 12 per cent. The Coalition committed to not change that, but once again, they’re laying the groundwork for another backflip,” he said.
He explained the over the course of the coronavirus pandemic, $40 billion worth of economic stimulus has come from Australian workers taking cash out of their own superannuation account because they had no other options.
“That will result in a loss of income down the track for young people of potentially $100,000 or more,” he said.
“We have 600,000 Australians who have been left with superannuation balances of zero. That will have an impact on the quality of their life in their retirement, but it will also have an impact on the future budget position of future governments down the track.”
He said Labor supports the 2025 superannuation boost and will “fight any attempt to undermine or change it”.
Treasurer Frydenberg said the government will continue to carefully consider the observations made in the Retirement Income Review.
