Australians could draw down more on their superannuation balances, as well as access the equity in their home upon retirement, instead of sacrificing today’s wealth through increasing the superannuation guarantee, government research has revealed.
The long-awaited release of the retirement income review (RIR) revealed that many Australians are not using the superannuation system as it is intended.
“Many people misunderstand the purpose of superannuation, believing that in retirement they should only draw on the return from the investment of their retirement savings and not touch the capital amount,” the report found.
“Most retirees die with the bulk of their wealth intact. However, the assumption that retirees use their assets more effectively in retirement highlights the outcomes that the system can deliver.”
This is leading to Australians having a poorer lifestyle in retirement than they enjoy during their working life, the report stated.
Not only are Australians using the system wrong, one of the major findings suggests a trade-off between the superannuation rate and wages with lower-income Australians being worse off under a higher superannuation guarantee.
“The weight of evidence suggests the majority of increases in the SG come at the expense of growth in take-home wages,” the report said.
The RIR found that Australia’s retirement system was “sound, stable and effective” and that there were limited arguments for proceeding with the legislated increase to 12 per cent.
“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 review said.
“Maintaining the superannuation guarantee rate at 9.5 per cent would allow for higher living standards in working life,” Mr Frydenberg said, quoting the report.
“Working life income for most people would be around 2 per cent higher in the long run… the most effective way for people to secure themselves in retirement is not necessarily an increase in the superannuation guarantee, but by more efficiently using the savings that they do have.”
The importance of housing
The review has shown that Australian pensioners have a strong safety net in property that can be used to reduce income inequalities, albeit the complexity of the system might be holding people back.
The report suggests an efficient way for retirees to enjoy a comfortable retirement is through accessing the equity in their home as well as drawing down on their superannuation balances.
“Home owners 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 review said.
“If this potential were realised, housing would take on an even more important role in the retirement income system.”
Industry experts react
Industry Super Australia (ISA) has welcomed the review, stating it has confirmed Australia’s compulsory super system has lifted living standards for millions while easing the burden on the aged pension.
“The two-thirds of Australians who support the legislated and long-promised super increase would not take too kindly to politicians, who pocket 15 per cent super on top of their generous salary, using this review to snatch away their retirement savings,” Mr Dean said.
“This report’s findings must be used to support sensible reforms that will grow members’ savings, not cherry-picked to support pre-conceived policy ideas that will leave people and the nation worse off.”
The ACTU also welcomed a lift in superannuation but attacked the Morrison government for trying to use the review to hold rates, saying Australians “will work until they drop dead” if superannuation rises are delayed.
“Once again, the Morrison government has failed to be honest with the Australian people about the future of their retirement incomes, ACTU president Michele O’Neil said.
“The retirement income review was supposed to provide certainty, instead the Australian people are left wondering whether next year’s superannuation will increase to 12 per cent, promised to them and enshrined in law will be stripped away by this government.”
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