Australia needs superannuation pension products
THE recently published report of the federal Retirement Income Review implied that the compulsory superannuation contributions should not be increased from 9.5 per cent to 12 per cent because, in general, retirees do not use up their retirement savings and even increase these savings in retirement.
The Retirement Income Review based this finding on one academic publication from 2017 and a Grattan Institute report from 2018.
Obviously, superannuation funds would like compulsory contributions to go up and are keen to show that, on the contrary, retirees do use up their retirement savings.
The Association of Superannuation Funds of Australia (ASFA) has prepared a research paper which, not surprisingly, finds that, in general, Australians exhaust their superannuation in retirement and leave no superannuation when they pass away.
ASFA bases itself on ATO and APRA data and previously unpublished Household, Income and Labour Dynamics in Australia (HILDA) survey results.
Who is right, the Retirement Income Review or ASFA?
The question whether compulsory superannuation contribution rates will generally produce adequate retirement incomes cannot be answered based on the experiences of people who generally have not had the benefit of superannuation throughout their working life.
ASFA says that “80 per cent of people aged 60 and over who died in the period 2014 to 2018 had no super at all in the period of up to four years before their death”.
These are all people who started to receive compulsory employer superannuation contributions in 1992, when they were 36 or, more likely, much older and the compulsory contribution rate was a lowly 3 per cent. They had no chance to build up an adequate level of superannuation savings and, naturally, those inadequate savings had been exhausted before they died.
The studies used by the Retirement Income Review were published in 2017 and 2018 respectively. The findings of these studies also reflect the immaturity of the compulsory superannuation system.
Rather than mount spurious claims based on ATO, APRA and ABS data, what ASFA should do is get its members to develop annuity-style superannuation pension offerings. These are quite common elsewhere in the developed world but rare as hens’ teeth in Australia.
Such superannuation pensions would make it crystal clear how much retirement income you would get for what level of superannuation savings. And that would settle the question of what an adequate compulsory superannuation contribution rate looks like.
One of the main reasons those with retirement savings hoard them is that they generally have no understanding of how to use them and run them down responsibly. And they have virtually nowhere to turn to be shown.
CPSA’s publication Would you rather be financially secure now or when you’re dead? is a modest attempt to help retirees and intending retirees make the most of their savings.