But as the government prepares for an independent inquiry into retirement incomes, new Grattan Institute research finds that increasing compulsory contributions from 9.5% of wages to 12%, as has been legislated, would leave many Australian workers poorer over their entire lifetimes.
They would sacrifice a significantly increased share of their lifetime wage in exchange for little or no increase in their retirement income.
The typical worker would lose about A$30,000 over her or his lifetime.
More compulsory super means lower wages
Superannuation delivers higher incomes in retirement at the expense of lower incomes while working.
Yet the superannuation lobby usually presents only one side of the pact, urging an increase in compulsory super to get the higher retirement incomes while ignoring the income that workers have to forgo to get them.
This means increases in compulsory super come at the expense of wage increases – something that was acknowledged when compulsory super was set up (indeed, it was part of the reason it was set up) and has been acknowledged by advocates of higher contributions, including the former opposition leader Bill Shorten).
The reality is that most Australians can already look forward to a better living standard in retirement than they had while working – even if they interrupt their careers to care for children. Workers with interrupted employment histories lose super in retirement, but get larger part-pensions.
The poorest Australians get a clear pay rise when they retire: the age pension is worth more than their after-tax income while working.
Other Grattan Institute research finds retirees are more comfortable financially than any other group of Australians and are much less likely to suffer financial stress than working-age Australians.
It needn’t lead to better retirement
So what about Middle Australia?
It is always possible the pension rules will change, but it isn’t usually regarded as wise to assess proposals on the basis of changes that haven’t happened and aren’t being suggested.
The graph below shows that the big winners from higher compulsory super would be the wealthiest 20% of Australian earners, who would benefit from extra super tax breaks and would be unlikely to receive the age pension anyway.
Higher compulsory super redistributes income from the middle to the top. Middle earners would be no better off.
- ^ sold (www.keating.org.au)
- ^ independent inquiry (www.afr.com)
- ^ new Grattan Institute research (blog.grattan.edu.au)
- ^ only one side of the pact (www.afr.com)
- ^ they appear (blog.grattan.edu.au)
- ^ part of the reason it was set up (www.abc.net.au)
- ^ acknowledged (www.abc.net.au)
- ^ Productivity Commission finds super a bad deal. And yes, it comes out of wages (theconversation.com)
- ^ A$20 billion a year (theconversation.com)
- ^ better living standard in retirement (theconversation.com)
- ^ interrupt their careers (insidestory.org.au)
- ^ more comfortable financially (grattan.edu.au)
- ^ magic (www.smh.com.au)
- ^ benchmarked to wages (www.dss.gov.au)
- ^ Grattan Blog (blog.grattan.edu.au)
- ^ A$2 billion to A$2.5 billion (grattan.edu.au)
- ^ overwhelmingly (grattan.edu.au)
- ^ Myth busted. Boosting super would cost the budget more than it saved on age pensions (theconversation.com)
- ^ dwarf (treasury.gov.au)
Authors: Brendan Coates, Program Director, Household Finances, Grattan Institute