Compulsory super is reportedly failing to fulfil its purpose, with an increasing gap forming between retirement expectations and reality.
These are the findings of a new report, Twenty years of the superannuation guarantee: The verdict, written by Professor Simon Kelly for CPA Australia. Kelly examined the effectiveness of Australia’s compulsory superannuation system, and concluded that the system had “failed to deliver on some of its core objectives”.
Increased super balances have lulled Australians into a false sense of wealth, so they are spending more and increasing debt, says the report.
“Their superannuation balances have grown, albeit most likely at the expense of other forms of saving. Despite this, the SG has not closed the gap between retirement expectations and reality.”
While it is technically only a ‘perceived’ increase in wealth due to SG contributions, growing superannuation balances and rising house prices, people are spending more and using debt to fund a higher current living standard – knowing that a super payout is coming in future.
However, the report says that their super balances and the age pension are not enough to cover their expectations, particularly when they have been earmarked for debt repayment or promised to children.
Methods such as downsizing a home are often suggested as a way of releasing funds for retirement, but the report says that this rarely changes a person’s net ﬁnancial wealth position.
“It is now 20 years after the SG was introduced, and superannuation savings minus household debt effectively equals zero,” the report concluded.
Commenting on the report, Alex Malley, CPA Australia chief executive, says, “The ﬁndings in this report reinforce the fact that Australia’s compulsory superannuation system has, in many ways, failed to deliver on its core objectives.
“Policy measures must be considered to ensure superannuation savings are being invested to be used to fund a person’s retirement. Serious consideration must be given to encouraging income streams in retirement and limiting the amount of superannuation that can be taken as a lump sum.”
Malley says that without change, super savings are likely to be inadequate, expectations will be “crushed” and the age pension will again be put under pressure.
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