Good news super guarantee hike could be scrapped

The long-awaited retirement income policy review report from former IMF Director and Treasury deputy secretary Mike Callaghan is looking good based on reporting by the Financial Review:

Increasing the compulsory superannuation rate could disadvantage low-income earners and cut workers’ lifetime income by 2 per cent, the much-anticipated retirement income review has concluded, opening the door for the Morrison government to delay or even scrap legislated rises.

This is great news because continuing with the scheduled increases in the super guarantee rate, progressively increasing it to 12% by mid-2025, would be really bad policy. Among other reasons, Grattan Institute modelling suggests it won’t actually provide much of a benefit to many workers, as they’ll just end up with lower age pensions (due to means testing), and it would also be very bad macroeconomic policy to increase savings while the economy remains well below its potential, which could be the case for the next few years at least.

I’ve previously supported scrapping the super hike, on QEW (Imperative to avoid bad policy measures like super increase which would set back recovery) and in an article co-authored with Adept Economics Research Officer Ben Scott (Super Guarantee hike should be scrapped or delayed).

It will be interesting to see what specifically the review says about how “Accessing home equity is an under-utilised opportunity.” It sure is, given all the asset-rich, cash-poor retirees living in Australia’s capital cities, but changing policy settings (e.g. pension assets/means test) would be politically toxic. Look at all the trouble the Opposition’s franking credits and negative gearing policies caused it in the 2019 election, for example. Perhaps the Government will provide some type of incentive to encourage reverse mortgages, although ASIC has previously cautioned against reverse mortgages according to this ABC report because they’re not well understood by people. It’s going to be interesting to see how the government responds to what is sure to be a very important report, one that could justify big changes to our retirement income policies.

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2 Responses to Good news super guarantee hike could be scrapped

  1. Bill says:

    Super has failed in its primary objective to take pressure off the aged pension. Taxpayers now pay more in subsidy to support the current rent-seeker captured super system than they would have under an expanded and better funded aged pension system. Well done Australia! Since we are stuck with the system, reform needs to take place to reduce fees to reasonable international benchmarks or below! What a scam.

  2. Scott Hook says:

    Sorry Gene but I disagree. Information asymmetries for individuals will mean that they will underestimate the amount of funding needed to retire with and could place themselves at peril in retirement. The other matter is the benefits from building up national savings. As future plans for new infrastructure emerge in a post-COVID world we need more savings being placed for investments in the economy. Also, if people do not have this increase then investment in homes and property will remain the most popular “plan B” for households and that will continue to deprive new entrants into the housing market. There is also no assurance that governments will continue pension payments into the future and are probably likely to freeze or reduce benefits as the ageing bulge of baby boomers and generation X progress into retirement. The promises of a few dollars now should not be the argument to justify a more dependable and independent retirement for working people. It is a trade-off but one that is not well informed on the time value of money.

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