- A long-awaited review into Australia’s retirement system has been released on Friday.
- Excerpts appear to lay the groundwork for the government to dismiss raising compulsory super to 12%, currently scheduled for 2025.
- While not making recommendations, its findings appear to place a greater onus on home ownership, which aligns with policy ideas floated by some Liberal MPs.
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The Morrison government’s now looks almost certain to ditch raising compulsory super contributions for working Australians in favour of lifting home ownership rates.
Released on Friday, the final report of the long-awaited Retirement Income Review concluded that gradually raising the super guarantee (SG) from its current rate of 9.5% of wages to its scheduled destination of 12% was not necessarily in the best interests of Australians.
It noted that a raise “may involve an unacceptable reduction in living standards prior to retirement, particularly for lower-income earners.”
“This is based on the view, supported by the weight of evidence, that increases in the SG rate result in lower wages growth, and would affect living standards in working life,” the report stated.
“If the superannuation guarantee stayed at 9.5% rather than increasing to 12%, they would also have higher incomes during their working life.”
While the report is actually complimentary of Australia’s “effective, sound and broadly sustainable” retirement system composed of both the pension and superannuation systems, it acknowledges also that complexities and inefficiencies abound.
Most significant however are the findings on home ownership, with the report promoting it as a key foundation of secure retirement.
“This report highlights the importance of home ownership in achieving security in retirement, such as removing the need for income to pay for rental accommodation and providing an asset that can be drawn on to supplement retirement income,” the report noted.
“Home owners also have the opportunity to access the equity in their home to supplement retirement income and manage longevity risk, although few currently do so. If this potential were realised, housing would take on an even more important role in the retirement income system.”
It could trigger the biggest change in Australian retirement policy
The report makes no actual recommendations, but such ‘findings’ set the stage for the Coalition to fundamentally alter the structure and diminish the purpose of Australia’s $3 trillion super system.
It’s not as if it would be the first time Coalition governments have diverged from Paul Keating’s vision of ensuring workers had sufficient savings to either entirely or largely sustain their retirement.
Successive governments, beginning with John Howard’s and continuing to Scott Morrison’s, have sought to postpone a 12% rate. Initially slated for 2001, the current schedule is for a 12% super guarantee by 2025.
However, the report could lay the groundwork for the Morrison government do away entirely with future increases to super contributions under the auspices of minting more homeowners.
“Importantly, the report also reaffirms the need to simplify and enhance the efficiency of the superannuation system and lift home ownership rates as a driver of higher incomes in retirement,” Treasurer Josh Frydenberg said.
The idea of opening up super to buy a home is one that has been promoted most recently by a number of Liberal MPs, most prominently Tim Wilson and Andrew Bragg.
Such a move would fundamentally move the goalposts. With superannuation a long-term scheme to be realised only over the course of a working life, such a reprioritisation could reduce a retiree’s eventual savings by hundreds of thousands of dollars.
Instead this money could be paid to workers incrementally with the hope they would be better positioned to purchase a home, amid collapsing affordability.
With super having become one of the most heated political battlegrounds for both the Labor and Liberal parties however, any changes will spark furious debate.