In updated projections released today, we show that, even after allowing for inflation, most workers today can expect a retirement income of at least 89 per cent of their pre-retirement income – well above the 70 per cent benchmark endorsed by the OECD, and more than enough to maintain pre-retirement living standards.
These changes reflect updates to reflect the 2015-16 ATO Taxation Statistics and an adjustment to how voluntary pre-tax super contributions are captured in the model.
Many low-income Australians will get a pay rise when they retire, through a combination of the Age Pension and their compulsory superannuation savings.
These latest projections again show that the legislated plan to increase compulsory superannuation contributions from 9.5 per cent to 12 per cent should be scrapped, saving the Budget about $2 billion a year.
The main beneficiaries from a higher Super Guarantee would be high-income workers who would benefit from further super tax concessions. Retirement incomes for low- income workers would increase by around 2.5 per cent, but most low- and middle-income workers would see very little change in their retirement incomes, because lower Age Pension payments would largely erode the increase in income from savings. And of course all workers would have lower incomes while working if the Superannuation Guarantee increases.
But the retirement incomes system is not working for some low-income Australians who rent, particularly in Sydney and Melbourne. And this problem will get worse because on current trends home ownership for over-65s will decline from 76 per today to 57 per cent by 2056.
Therefore the priority should be to boost the maximum rate of Commonwealth Rent Assistance by 40 per cent – worth more than $1,400 a year for a single retiree.