Sunday, November 22, 2020

Coalition paves way for scrapping planned rise in superannuation guarantee | Australia news


The Morrison government is laying the groundwork to scrap the already legislated increase to the superannuation guarantee, declaring the retirement income review has found current policy settings are suitable.

A summation of the retirement income review distributed by treasurer Josh Frydenberg’s office ahead of the report’s official release on Friday put greater emphasis on Australians using “voluntary savings”, including equity within their homes, ahead of raising compulsory superannuation contributions.

The prime minister, Scott Morrison, had committed to continuing the scheduled increase in superannuation, due to increase from 9.5% to 12% by 2025, at the last election, but has since walked back that pledge, signalling it now needed to be “carefully considered” given the economic impact from the pandemic.

No decision will be made until closer to next year’s budget, due to be handed down in May, but the briefing of the income review points to compulsory increases being scrapped, at least in the immediate future.

“A rate of compulsory superannuation that would result in people having an increase in their living standards in retirement may involve an unacceptable reduction in living standards prior to retirement, particularly for lower-income earners,” an extract of the report, provided by the government, says. “This is based on the view, supported by the weight of evidence, that increases in the super guarantee rate result in low wages growth, and would affect living standards in working life.

“The weight of evidence suggests the majority of increases in the super guarantee come at the expense of growth in take-home wages. The view is based on empirical research, economic theory, evidence across a number of countries and the original policy intent of superannuation guarantees.

“Increases in the superannuation guarantee rate will increase lifetime government support for higher-income earners by more than lower- and middle-income earners.”

In a statement ahead of the report’s release, the treasurer said the review “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”.

“This is consistent with the policies the Morrison government is implementing,” Frydenberg said.

“Our proposed super reforms will benefit Australians to the tune of $17.9bn over the next 10 years in the form of lower fees, improved returns and a streamlined superannuation system.”

That view sets up a policy battle with Labor, which has repeatedly backed in the guarantee as crucial for giving Australians a better retirement.

Homeowners were found to have better retirement outcomes compared with those who were still renting, with lower ongoing housing costs.

But the report also points to the potential for homeowners to draw down on existing equity in their properties, as well as spend savings, rather than quarantine those assets from funding retirement.

“Homeowners 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 says.

“A major misunderstanding is the view that ‘retirement income’ involves the return from investing superannuation balances, rather than drawing down those balances to fund living standards in retirement.”

It was not clear from the provided extract what that meant, but it is expected to include increasing access to “reverse mortgages”, where pensioners can borrow against the worth of their home and receive payments in fortnightly instalments, and downsize contributions, which allows for tax-free contributions to superannuation funds following the sale of the family home.

Superannuation has become a policy battleground between the two major parties, particularly after the government allowed people to withdraw up to $20,000 from their super savings as part of the Covid response.

The review found a 25-year-old who withdrew the maximum allowed amount of $20,000 would lose almost $100,000 in retirement savings by the time they reached the end of their working life. A 30-year-old would be $79,000 worse off, a 35-year-old $66,000 behind their peers and a 40-year-old would be $55,000 short of where they would have been.

The review found that in “some individual circumstances” the benefits from releasing super funds early during the pandemic “will exceed the benefits of preserving balances until retirement” but the extract did not include a breakdown of who benefited.

There are no recommendations contained within the review, which was first commissioned by Frydenberg in September 2019, and was headed by a former executive director of the International Monetary Fund and Treasury official, Michael Callaghan.

As such, the government will not provide an official response and instead will use the review to “inform” future policy decisions.

The review also found that without government intervention – which includes compulsory superannuation contributions – Australians would not be financially prepared for their retirement.

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