This year could see profound changes to the super industry if the Federal Government acts on Ripoll, Henry and Cooper with a view to the next two decades, and not just the next election. The Australian Institute of Superannuation Trustees [AIST] has identified the five most significant reforms which could make Australia a world leader, according to AIST’s CEO, Fiona Reynolds, and Gerard Noonan, chair of the institute’s policy committee. Adequacy AIST is concerned that the Henry committee appears to have found no case for lifting compulsory superannuation guarantee [SG] contributions above the current level of 9 per cent to 12 per cent, says Reynolds. “Research consistently shows that 9 per cent compulsory super over a working lifetime is still not enough for most Australians to enjoy a financially comfortable retirement,” she says.
A 9 per cent SG for a working life of 40 to 45 years achieves a replacement rate of about one-third of salary in retirement. Older workers who have not had the benefit of a full working lifetime of compulsory super have low super balances, but even most of those entering the workforce today are unlikely to enjoy a comfortable income in retirement unless the SG is raised to 12 per cent to improve retirement outcomes significantly – up to 20 per cent or more. Reynolds cites the 2010 Intergenerational Report released by Treasury last month which shows that 80 per cent of Australians will still rely on some form of the age pension 40 years from now if the SG remains at 9 per cent. The report projects that by 2050 there will still be more people receiving the full pension [about 30 per cent of Australians] than those who fund their own retirement [about 20 per cent].
These figures may surprise many young Australians now entering the workforce who assume that a working lifetime of compulsory super will guarantee them a pension-free retirement, says Reynolds. “We need to revisit the adequacy debate and see whether the picture this report paints of retirement in 2050 is where most Australians want to be. As the costs of an ageing population continuing to escalate, it becomes even more critical that we lift the SG to 12 per cent to ensure that as a nation we are less vulnerable to a blowout in age pension costs and that, as individuals, our retirement savings last longer,” adds Gerard Noonan. “If we’re to have a more meaningful debate about an appropriate level of SG, the government needs to provide a definition of adequacy,” he says, “and we called on Henry to do this.” Of course, a big issue is how to achieve this. At present, there is no consensus among unions and employer groups as to funding for additional contributions.