Australia’s superannuation system has become the focus of a growing political fight over whether workers are being required to save too much for retirement, as pressure builds to use the $4.8 trillion fund to ease cost-of-living pressures.
One Nation leader Pauline Hanson has proposed allowing renters and home borrowers to withdraw up to a quarter of their regular superannuation contributions for up to three years. She said the measure would give people “some breathing room”.
The proposal has drawn strong opposition from major superannuation funds and Labor, which says One Nation and the Coalition would undermine the scheme’s universal character. Treasurer Jim Chalmers has described the next election, in part, as “a referendum on super”.
Australia’s compulsory retirement savings pool is the world’s fourth-largest collection of private retirement funds and could become the second-largest within the next decade.
But the political dispute has also revived questions about whether the compulsory contribution rate has gone beyond what many people need. The superannuation guarantee began at 3 per cent of ordinary-time earnings in 1992 and reached 12 per cent last July, with no further increases currently scheduled.
Debate over the 12 per cent superannuation guarantee
A study by the e61 Institute found that people contributing 12 per cent would, on average, have more annual income in retirement than during their working lives.
“We think it’s a little bit odd to compel people to save so much that they have more income in retirement than they did during their working lives,” said Jack Buckley, an e61 economist and co-author of the study.
The institute said a system created to address inadequate retirement savings may have produced an “oversaving” problem. Longer lifespans and uncertainty over how long people will need their money also encourage workers to accumulate more than they may ultimately spend.
A growing proportion of Australians are dying with substantial superannuation balances, prompting concerns that a scheme intended to fund retirement is increasingly operating as an inheritance mechanism.
A federal retirement income review published in 2020 found that one in every five dollars paid out through superannuation was being inherited. It predicted that figure could rise to one in three by 2059.
The same review found that a 9.5 per cent contribution rate would provide most people with a comfortable retirement. It estimated that long-term working-life incomes would be 2 per cent higher under a 9.5 per cent rate than under 12 per cent, although retirement balances would be smaller.
The Grattan Institute has also argued that 9.5 per cent is sufficient. Independent economist Saul Eslake, however, said such assessments generally assumed workers completed 40 uninterrupted years of full-time employment.
“That proposition is not true, especially for the majority of women who typically take time out of the workforce to care for children or the elderly,” he said.
Superannuation funds have similarly argued that calculations based on uninterrupted full-time work underestimate the savings required by people whose careers are affected by caring responsibilities, unemployment or ill health.
Analysis by the Super Members Council found that only 24 per cent of women and 39 per cent of men had completed 40 unbroken years of work. Jo Kowalczyk, chief executive of Women in Super, said the system remained based on a model of employment that did not reflect most women’s lives.
“The question is not whether 12 per cent is too much. For many women, the more important question is whether 12 per cent of a very low or interrupted income can ever be enough,” she said.
Cost of allowing early access to super
The Super Members Council said a median full-time worker who withdrew 3 per cent of contributions for three years would be $25,000 poorer by retirement.
Further modelling suggested that people now aged 20 would pay an additional $3,700 in income tax over their lifetimes if One Nation’s proposal became law, largely because of higher age-pension costs when people had less retirement savings.
The estimated annual cost to the budget would be about $750 million in the 2030s, rising to roughly $4.5 billion by the 2070s.
“Turning super into an ATM is a reckless idea that would make battling Australians poorer,” said Misha Schubert, the council’s chief executive.
Compulsory superannuation was introduced both to improve retirement incomes and to reduce pressure on public finances as the population aged. Government projections show spending on the age pension is expected to fall from 2.3 per cent of gross domestic product currently to 1.8 per cent in 2065-66.
Mr Chalmers said: “Because of super, no other developed country will do a better job than Australia at taking pressure off the pension system, while boosting retirement incomes at the same time.”
However, Treasury projections indicate that the cost of superannuation tax concessions, which disproportionately benefit higher earners, will exceed age-pension spending by the 2040s.
Mr Eslake said concerns about oversaving could be addressed by reducing the generosity of tax concessions for high-income earners, rather than lowering the compulsory contribution rate for everyone.
