Rice Warner counters Grattan super claims

Actuarial research house, Rice Warner has countered the latest Grattan Institute claims around superannuation and has argued that the superannuation guarantee (SG) should be raised to 12 per cent.

In doing so, Rice Warner has accused the Grattan Institute of glossing over important facts, something which it said impacted the validity of the Grattan modelling.

“Grattan also fails to understand the significance of the May 2016 Budget changes which led to much better equity in the system,” the Rice Warner analysis said. “In our opinion, its suggestion to drop the level of concessional deductible contributions to $11,000 a year is both provocative and ill-considered.”

On the question of lifting the SG to 12 per cent, the Rice Warner analysis said that if there were no Age Pension there would be a good argument to have minimum savings of 15 per cent of salary or more.

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“However, the means-tests on the Age Pension complicate the value of any increase in SG. For many, the higher superannuation benefit will be largely offset by a reduced Age Pension, at least for the first decade or so of retirement. Despite this hidden tax, there are good strategic reasons to increase the SG,” it said.

The analysis said the listed those strategic reasons as being:

• If the superannuation system can continue to deliver strong real returns over decades, this is better than most people will be able to achieve with their own savings.
• The fixed costs of the industry allow the additional contributions to deliver even better value (as fees will fall as a percentage of balances as cash flow grows).
• The higher superannuation benefits will lead to even lower government benefits, which will give scope to redirect expenditure to areas of need (not necessarily just to retirees).

“The first nine per cent of the SG was introduced at a time when real wages were rising. There is an argument for timing any future increases in similar economic conditions or potentially excluding lower income people who will not realise value from a higher SG. Further, the impact of a higher SG contribution will not be noticeable for many years. It will have most impact on those starting their working life on 12 per cent and they will not retire for at least 40 years.”

“Ultimately, good policy needs to incorporate the long-term strategic aims and purpose of the SG. That is, to reduce reliance on the Age Pension,” the analysis said. “The complexity of interactions between the different retirement pillars makes it difficult to evaluate the value in increasing the SG and simple cameos are not up to the task.”

“The key is to ensure we all agree on the objectives of superannuation and of the Age Pension itself. In doing so, we can then ensure that policy proposals are consistent and promote the wellbeing of all Australians.”