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Assuming for the moment that how much people need in retirement is relevant for determining how much compulsory super they need,the inquiry will need to examine what people need to live on in retirement.
The “standards” prepared by the Association of Superannuation Funds of Australia are loose. The more generous of the two allows for overseas travel every two or so years,$163 per couple per fortnight on dining out,$81 on alcohol “or equivalent spent with charity or church”. It isn’t a reasonable guide to how much people need to live on,and certainly isn’t a reasonable guide for how much the government should intervene to make sure they have enough to live on. They are standards it doesn’t intervene to support while people are working.
And there’s something else. Super isn’t what will fund it. Most retirement living is funded outside of super,either through the age pension,private savings,or the family home (which saves on rent). Most 65-year-olds have more saved out of super than in it,and a lot more than that saved in the family home.
It’s a sleight of hand to say that retirees need a certain proportion of their final wage to live on and then to say that that’s how much super should provide. The best guess is that,although paid by employers in addition to wages,compulsory super comes out of what would otherwise have been their wage bill.
Treasury puts it this way:“Though compulsory superannuation guarantee contributions are paid by employers,wage setting generally takes into account all labour costs. As such,it is widely accepted that employees bear the cost of higher superannuation guarantees in the form of lower take home pay.”
The inquiry will probably make its own determination. If it finds that extra contributions do indeed come out of what would have been pay rises,it will have to consider the trade-off between lower pay rises (and they are already very low) and the compulsory provision of more superannuation in retirement.
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It’d be tempting to think that the compulsory nature of compulsory superannuation meant that each extra dollar funnelled into it increased retirement savings by an extra dollar. But it doesn’t,in part because wealthy Australians who are already saving a lot have the option of offsetting it by saving less in other ways.
For them,the increase in saving isn’t compulsory. For financially stretched Australians unable to afford to save (or for Australians at times in life when they can’t afford to save),the compulsion is real and unwelcome.
The inquiry will have to make its own assessment,updating Reserve Bank research which found in 2007 that each extra dollar in compulsory accounts added between 70¢ and 90¢ to household wealth.
Boosting private savings (at the expense of people who are unable to escape) is one thing. Boosting national savings (private and government) is another.
The tax concessions the government hands out to support superannuation are expensive. The concession on contributions alone is set to cost $19 billion this year and $23 billion in 2022-23,notwithstanding some tightening up. It predominately benefits high earners,the kind of people who don’t need assistance to save.
On balance it is likely that the system does little for national savings,cutting government savings by as much as it boosts private savings. But because the question hasn’t been asked,not since the Fitzgerald report on national savings in 1993 shortly after compulsory super was introduced,we don’t know.
It’ll be up to the inquiry to bring us up to date.