Treasurer Josh Frydenberg is considering whether to introduce more flexibility into the nation’s retirement saving system.
Speaking on Feb. 27 at a retirement income forum hosted by the Council on the Ageing (COTA), Frydenberg signalled that the government would like to see more “flexibility” in the sector to allow people to better balance their working life and their retirement income.
He noted that while the current system provided options for people who wanted to save more for retirement, it was “very limited” for people who wanted to save less to maintain their quality of life now.
“While compulsion will remain an important part of our system, providing Australians with more flexibility should not be seen as an attempt to undermine the system overall,” he said.” Far from it.”
“The earlier Australians interact with the system, the more engaged they will be and the more ownership they will feel over their own savings,” he continued. “More flexibility also means better accommodating the many different circumstances Australians finds themselves in over the course of their lives.”
The comments from Frydenberg come after the Retirement Income Review, released in November last year, found that “the Australian retirement income system is effective, sound and its costs are broadly sustainable.”
A point Frydenberg noted was demonstrated by the early release of the superannuation savings as part of the federal governments CCP virus response package.
“Early release of superannuation in many cases allowed people to stay in their homes, keep their kids in school and provide for their families during an exceptionally challenging period in their lives,” he said. “The Review found, because of our robust multi-pillar system even a person who accessed the maximum $20,000 today will still have an adequate income in retirement.”
Superannuation Guarantee Comes at the Expense of Wages
However, Frydenberg noted there was a trade-off between the superannuation guarantee (SG) and wages, a highly controversial topic dividing politicians and industry.
The federal government, Reserve Bank and retirement experts are concerned that any increase will affect real earnings and living standards of Australians right now.
It is a concern backed up by the Review which found that “a higher superannuation guarantee means lower wages for employees, with the people most affected by high default settings those with lower incomes.”
“No-one should be surprised by this or find it controversial,” Frydenberg said. “It was part of the original policy design of the superannuation system.”
Frydenberg argued that superannuation contribution increase is not the only solution to lifting retirement income, nor is it the panacea to all the issues related.
There are a number of ways that individuals can significantly boost their retirement incomes without having to increase their superannuation contributions.
One of the Review’s key findings was that homeownership and voluntary savings are just as important as compulsory superannuation contributions in sustaining an adequate retirement income.
Also, more efficient use of savings in retirement can have a bigger impact on improving retirement income than increasing the Superannuation Guarantee.
“If people efficiently use their assets, then with the SG rate remaining at 9.5 percent, most could achieve adequate retirement incomes when combined with the Age Pension,” he said. According to Treasury’s estimation, the resulting increase in retirement income could be over $100,000 for a median-income earner.
Frydenberg has indicated the government will continue to pursue policies focusing on increasing the super system’s efficiency and lifting homeownership, including pushing forward ‘Your Future, Your Super’ reforms, First Home Loan Deposit and First Home Super Saver Scheme.