A report released by CPA last week stated that compulsory superannuation was failing to fulfil its purpose.
CPA Australia said that any increased super savings have been offset by an increased level of household debt.
ASFA CEO Pauline Vamos disputes the findings and says that more recent figures support three key conclusions:
Lump sum superannuation benefits are not being treated as a windfall or being used to pay for the lifestyle that is being lived now
Household savings have risen with compulsory superannuation and the enforced savings have not been offset by similar or larger private borrowings
The increase in superannuation wealth has not largely been driving the increase in borrowings by households
She says that the conversation is welcome, but “the strength of any conversations is the based on the quality of the evidence that informs it so that myths do not continue”.
Vamos has busted three myths about the CPA report:
MYTH 1: Lump sum superannuation benefits are being treated as a windfall and being used to pay for the lifestyle that’s being lived now
Vamos says that data from the latest HILDA survey indicates that the great bulk of recent retirees keep their retirement savings primarily in superannuation and draw down an income stream. Those retirees that take their retirement savings out of the superannuation system are a minority and there is no evidence that the superannuation savings are used primarily for immediate consumption purposes.
MYTH 2: Household savings have not risen with compulsory superannuation as the enforced savings have been offset by similar if not larger private borrowings.
“All academic and government research into the impact of compulsory superannuation on savings indicates that it has substantially lifted household savings,” says Vamos. “While there is some reduction in voluntary savings, especially by higher income earners, it is generally accepted that household savings increase in total by around 50% of the aggregate amount of compulsory savings flowing into superannuation.”
MYTH 3: The increase in superannuation wealth has largely driven the increase in borrowings by households
ASFA says that the increase in superannuation wealth is one of the least likely factors leading to a borrowing increase. “The CPA stand alone in their assertion regarding this.”
Analysis by the RBA and other respected analysts indicated that the primary drivers of increased household debt in Australia and elsewhere have been:
Financial deregulation and financial product innovation have allowed households to borrow more, including redraws on residential mortgages.
Increases in housing prices directly led to home purchasers needing to borrow more to enter the housing market and also have led through a wealth effect through existing home owners spending more.
Negative gearing is used by a significant minority to build future wealth through capital gains