A campaign by the Grattan Institute against lifting the superannuation guarantee rate to 12 per cent is based on a “misleading” model, according to a new Mercer report released on Thursday.
Mercer senior actuary David Knox said the Grattan findings used a series of assumptions that were not realistic for the average Australian.
“I think the Grattan reports pushed out over the last few months have suggested many Australian retirees have enough money when they retire – in fact too much money – so they argue the SG shouldn’t go to 12 per cent,” he said following the release of his report.
Knox argued that superannuation has become a hot political issue because Treasurer Josh Frydenberg has announced the forth coming review into retirement incomes but that the scope of that review remains unknown. Also, he said, the SG is planned to increase in July 2021 “so if anything is going to change that planned increase, it will need to happen in the next 12 months”.
“I would like to see the review ask what are we trying to achieve with retirement incomes, what is the objective of the role of aged pension, the role of super and the role of other savings.
“Rather than dissect each little bit on its own let’s look at the big picture.”
In his view, calls from the Coalition ‘think-tank’ to halt the increase in SG has come about because wage increases are very low, if not stagnant. So, politically, that raises the question as to whether the extra dollars should go into wages or super.
Commenting on the Mercer report, Knox claimed it is the first to offer a detailed analysis of Grattan’s research assumptions, many of which don’t stack up to closer scrutiny.
“In light of the recent announcement of a review of Australia’s retirement income system, it is vital to counter misleading conclusions to ensure all discussion and debate is grounded in reality and typical behaviour,” he said.
Mercer’s review comes just weeks after Rice Warner slammed Grattan for stating that raising the SG to 12 per cent would cost average workers $30,000 each. The actuary argued that Grattan’s analysis has less to do with the SG level and more to do with the issues of means-testing of the age pension.
Knox found Grattan’s assertions were based on a number of flawed assumptions such as workers are single when they retire, whereas 70 per cent have a partner and will therefore receive a lower age pension than assumed by Grattan.
Other misleading assumptions include: Desired lifestyle is based on the income received in the five years prior to retirement, despite the fact many Australians transition to retirement by reducing income in the last few years; everyone will work until the future pension eligibility age of 67, when in fact most Australians retire a few years before the pension age; no allowance being made for half of the population living beyond the age of 92, and the median income worker having a net replacement rate of 89 per cent of their income before retirement, when Mercer research shows this will be much lower, at just 68 per cent.
He said Grattan’s sole focus on retirement income also failed to consider the need for flexibility to provide retirees with access to capital, an important feature of retirement products.
“Mercer’s research has shown that retirees want a stable income for their whole life, as well as access to capital to provide them with some protection from unexpected expenses that can easily occur during retirement,” he said.
Knox warned policy makers to approach Grattan’s research with “considerable caution” given it was limited to “a single cameo” that had given rise to “misleading” conclusions.
“It’s critical that any modelling of retirement incomes considers a significant number of cameos to provide policymakers with a better understanding of the implications of different policies,” he said.
“We should recognise that the next generation will face the effects of the changing workforce, reduced home ownership, and financial implications associated with an ageing population. We cannot assume that the future will reflect our past experience. It is much more complex than that.”