On the eve of the Government's release of the latest Intergenerational Report, the Financial Services Council (FSC) has pointed to the need to further refine the superannuation settings to take pressure off the age pension.
FSC policy director, Andrew Bragg has written an analysis in which he has pointed to the fact that Australia's superannuation regime has not yet succeeded in producing a sufficiently large cohort of people capable of fully-funding their own retirement.
"Although Australia moved ahead of most OECD nations to implement super in 1992, the contribution rate is not yet high enough to provide fully-funded retirement incomes. While super has begun to reduce age pension outlays by $5.7 billion in 2013-14 according to NATSEM, it can further reduce age pension costs with the right settings between the super and pension systems," Bragg wrote.
He said that if superannuation was to be Australia's signature policy for managing demography by building savings, it had to be "squarely calibrated to reduce pension costs" as the nation's demography changes.
"A dollar saved should be a reduced pension outlay," Bragg wrote. "However, current settings have not made this clear. For instance, a couple who owns their own home, holds an additional $1 million in assets and receives an income of over $60,000 per year is eligible to receive a part age pension according to RiceWarner Actuaries."
"Similarly, the preservation age is too low at age 60. The gap between when people retire and when they can access their superannuation must close. $200 billion in savings would be achieved for each year the preservation age increases."
"The nation's superannuation system must be allowed to deliver its objective by reducing intergenerational cost pressure on the Commonwealth," Bragg wrote. "Mismanaging demography is not an option. Nor is it a matter which can be easily fixed by "pulling a lever". The gift of a longer life is precious and if governments can properly manage change, future Australians will not be saddled with a narrow debate on the cost burden of living longer."
