ISA v Grattan on Super Guarantee

Industry Super Australia (ISA) has come out swinging against suggestions by the Grattan Institute that there is no need to lift the superannuation guarantee (SG) beyond its current level of 9.5 per cent.

The industry funds group has described as ‘deeply flawed’ the Grattan claims that the SG at its current rate will deliver adequate incomes for future retirees, with ISA special retirement income adviser, Phil Gallagher referring to what he described as “Grattan’s dubious modelling assumptions” which he said were unrealistic and unrepresentative of most Australian employees.

Gallagher said the three key flaws in the Grattan modelling were:

• Assuming everyone can top up their super with extra voluntary contributions resulting in lifetime contributions that could be up to 50 per cent greater than the basic SG;
• Assuming a continuous uninterrupted 37 year working life and contributions, ignoring the reality of many workers especially women;
• Assuming living standards in retirement shouldn’t keep pace with the rest of the community.

Gallagher, who previously headed Treasury’s Retirement Income Modelling unit for 21 years from 1993 to 2013, said the Grattan modelling didn’t bear any relationship to the typical experience of those who relied on the SG.

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“Across all age groups just 12.2 per cent of employees with super make additional concessional contributions but Grattan appear to have assumed that everyone does,” he said. “This loads up contributions and inflates retirement balances significantly. The methodology adopted appears to skew up contributions for lower earners in particular, resulting in retirement balance projections that are potentially inflated by as much as 45 per cent.”

“There are many other problems including assuming an unbroken career which is not at all representative for women and setting retirement benchmarks that are not pegged to community living standards. This lowers the benchmark, making surpassing it easier to achieve,” Gallagher said.

There was one issue on which the ISA and Grattan did agree – the Age Pension and need to adjust the asset test to restore coherent savings incentives.

The ISA said one reason Grattan’s modelling found little improvement from the increase in the SG to 12 per cent was because of the Age Pension asset test and that adjusting its taper was critical to ensuring super provided extra income over and above the pension as it was designed to do.

“Getting the SG to 12 percent is vital to deliver a decent standard of living for working people who have little scope to save for their retirement outside super,” Gallagher said.