Going through with the legislated superannuation guarantee (SG) increase over the next five financial years is a good step in stemming the growing inequality in the country, according to Rice Warner.
In an analysis, the research house said there would be several positive impacts of increasing the SG including:
- It would increase retirement benefits for the lowly paid – and give them more dignity in their old age. That can be properly addressed through our tax and transfer system (or through the existing hardship provisions for withdrawing benefits for extreme cases);
- It would not affect high income earners as they generally salary sacrifice up to the maximum concessional contribution of $25,000 a year already;
- Importantly, it would improve the position of the median income/median wealth sector of the economy that has borne the brunt of changes in Age Pension Means Testing and tax concessions;
- The steady, step wise increment in the SG is therefore reasonably well targeted, provided the tax and transfer system looks after the lowly paid and less well off in other ways;
- It provides a buffer if future investment earnings are lower than we have come to expect. If members do continue to earn strong real investment returns, that will give them more choices later in life;
- This form of forced saving is the most efficient means of assisting those who cannot afford financial advice and have little capacity to save;
- For those who end up saving too much, their excess benefits can contribute to the funding of end-of-life health and aged care requirements; and
- There would be a moderate saving on future Age Pension costs. The costs to revenue from lower personal taxes would increase but arguably these rates are too high anyway.
Rice Warner noted low wage growth had presented middle Australians with significant challenges to their short-term financial security and living standards.
“When coupled with soaring asset values and the structural factors driving that rise, low wage growth also threatens their medium-term financial security and living standards,” it said.
“Let us not threaten their long-term financial security and living standards as well by retreating from our commitment to what is globally recognised as one of the very best retirement systems. Instead, let’s focus on ways to improve the system and make it even better.”