Friday, August 08, 2008

The super-man is wrong: 9 per cent is plenty

We don't need to lock away 15 per cent of our lifetime income in superannuation, and the arguments of Paul Keating to support the change are disturbing.

In the book on his economic reforms launched this week, Unfinished Business, Keating says it would turbo-charge the funds management industry.

"The Australian superannuation savings pool is now fourth in the world; in not too many years, it will be number two," he tells the author David Love.

"With such a massive pool of savings, even at 9% we would go to something like 3 trillion dollars. With movement to 12 and then to 15, the whole thing will accelerate. With a vat of funds that large, you will find the institutions coming here."

Great for them. But for us?...

It is true that many of us who are presently working will retire without enough super. The Australian Association of Superannuation Funds says the average account in 2006 was just $69,000 for men and only $35,500 for women.

But that's because we have spent only a portion of our working lives putting in 9%. By the middle of this century almost everyone who retires will have spent his or her entire working life putting in 9%.

And guess what? They'll be embarrassingly well off.

According to calculations by the Parliamentary Library, right now an Australian on $50,000 can expect to take home $39,140 after tax. After a lifetime of compulsory 9% super, that person's post-retirement post-tax income would jump to $50,013. That's right. Nine per cent super would buy them a pay hike on retirement.

It is in the middle of our working lives when we are trying to buy a house and educate our children that we really need our income. We don't need as much when we retire.

Institutionalising a pay rise on retirement would be cruel, and Superannuation Minister Nick Sherry knows this. He is right to focus on pensions.

Many of us will retire short of money. Our children and their children's children will not.


References:

Peter Martin,
Tuesday Column: Please, please, don't put it into super, Canberra Times, February 26, 2008

Richard Denniss,
The Crisis of Cash or Crisis of Confidence - the Cost of Ageing in Australia, Australian Journal of Political Economy, July 16, 2007

Association of Superannuation Funds of Australia,
How much do you need
to spend to have a comfortable standard of living in retirement?,
2004.

Association of Superannuation Funds of Australia, Retirement savings update, February 2008

Association of Superannuation Funds of Australia, Are retirement savings on track? June 2007

NATSEM, Superannuation – the right balance? Post June 2007, CPA Australia, February 2008

Peter Martin, UNFINISHED BUSINESS - Paul Keating's interrupted revolution, Canberra Times, August 02, 2008