The super industry is not alone in backing the Government’s plan to increase the Super Guarantee to 12 per cent, but many Australians could be forgiven for thinking so. FIONA REYNOLDS, CEO of AIST, writes. Recently, there has been a lot of noise about carbon pricing and the national broadband network, but the equally important issue of how we plan to address the funding challenges of our ageing population seems to have fallen off many people’s radar. It’s a pity more retirees don’t speak out about what it is like to live on just a few hundred dollars a week. While there was plenty of post- Federal Budget debate on whether those living on a household income of $150,000 aren’t really all that well-off, there can be no debate that most retirees are doing it tough. Even taking into account that – unlike working families – most retirees have paid off their mortgage and no longer need to provide for dependent children, very few have any cash to spare.

Indeed, $150,000 is almost double the average superannuation balance for Australians aged between 55 and 64 years. Many of those retiring in the next few years will find their superannuation savings fall well short of providing them with an adequate income. Unfortunately, the retirement outcome for many younger Australians may not be all that different. While we are all putting more into superannuation than previous generations, we are also living longer – much longer. By 2050, life expectancy for the average Australian is projected to increase from the current level of just over 81 years to around 89 years. That’s good news, but it certainly makes the job of funding retirement that much harder. Even those who have had the benefit of the current 9 per cent Super Guarantee (SG) from the moment they started in the workforce won’t necessarily achieve the income levels that the OECD and many other economic analysts consider necessary for a dignified retirement. According to Treasury forecasts, the vast majority of Australians will still be reliant on some form of the Age Pension in around 30 to 40 years’ time. By then, the number of working Australians to support every person aged 65 years and over is forecast to decline to just 2.7 people (compared with five people now).

This is why the Government’s proposal for a phased increase of the SG from 9 to 12 per cent deserves attention and support. Modeling by AIST and others shows that increasing the SG to 12 per cent could deliver a 30 year-old on an average income an extra $108,000 in retirement. This equates to an extra $100 a week in today’s dollars – a big difference to most retirees. But it’s not just individuals who will benefit from an extra 3 per cent. A bigger super pot means a larger national savings and investment pool available to invest in infrastructure projects and more investment capital for Australian companies wanting to grow and expand. Many employer groups, particularly small businesses, frequently describe the SG as a tax on business that will force them to close their doors. However, history shows that this was not the case. The staged introduction of the SG over a decade did not negatively impact profits, growth or employment. It is therefore hard to argue that the proposed incremental SG rate rise to 12 per cent from 2013 to 2019 is likely to be a significant impost to either employers (in terms of wage costs) or employees in terms of a reduction in their take-home pay. Importantly, super funds aren’t just sitting around waiting for more money to flow their way. A bold and broad reform agenda – that includes the Government’s Future of Financial Advice reforms and its Stronger Super package – is set to deliver much-needed structural, efficiency and governance improvements across the entire sector. As we head towards the second half of the year when the Government’s superannuation reform agenda is set to go before Federal Parliament, we need to get the debate moving. We need to hear from the Coalition and the Independents on how they plan to ensure we have enough to live on in our old age.

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