Retired Australians would be left with lower superannuation balances if a planned increase to compulsory contributions doesn’t occur, but they could have slightly higher pay packets.
The long-awaited independent review into Australia’s retirement income system was released by Treasurer Josh Frydenberg on Friday, four months after the government received it.
It examines the links between superannuation, the age pension and voluntary savings, including home ownership.
The review found the system to be effective and sound but complexities, misconceptions and low financial literacy mean people are not adequately planning for retirement.
“People need better information, guidance and good, affordable advice tailored to their needs,” the report says.
Legislated incremental increases to the compulsory superannuation guarantee are due to come into effect in July, starting with a rise from 9.5 per cent to 10 per cent and then to 12 per cent over several years.
The government has yet to make a decision on whether to pause the increases.
Keeping the rate at 9.5 per cent would result in lower super balances at retirement for all income levels.
For middle and higher income earners, balances would be around 14 to 15 per cent less, and for lower-income earners it would be around 16 to 18 per cent.
But the report points to “the weight of evidence” suggesting the majority of superannuation guarantee increases are paid for through lower growth in wages.
“Estimates suggest that maintaining the superannuation guarantee at 9.5 per cent will result in working-life incomes about two per cent higher than under a 12 per cent rate in the longer term.”
Maintaining the rate at 9.5 per cent means people keep more of their total remuneration as wages instead of super contributions, the report says.
Mr Frydenberg believes the report gives the government’s policies a nod of approval.
The review aimed to improve understanding of the system and wasn’t set up to provide recommendations or propose policy changes.
Shadow treasurer Jim Chalmers rejects the government’s argument increasing the superannuation guarantee will mean lower wages.
“The government’s argument that freezing super will boost wages growth does not stand up to scrutiny given wages were historically stagnant after the last time this government froze the super guarantee,” he told AAP.
The superannuation industry manages nearly $3 trillion in assets and generates fees of more than $30 billion a year.
The report also found the age pension is more than a safety net, playing an important role in supplementing the superannuation savings of retirees and allowing them to maintain living standards.
It said the government’s early release superannuation scheme allowed people to respond to financial pressures during the pandemic.
It allows Australians to access up to $20,000 from their super accounts over two financial years.
“Equally, superannuation is not intended to solve every financial problem experienced in working life. Shifting the balance too far in that direction would compromise its main objective of providing retirement income.”