Despite myths that super is “not improving retirement outcomes”, an industry body has said the system is on track to set generations of Australians up for a comfortable retirement.
The CEO of the Association of Superannuation Funds of Australia (ASFA), Dr Martin Fahy, said super was working well to ensure the current workforce has a comfortable retirement.
He added, however: “A lift in the super guarantee (SG) to 12 per cent sooner rather than later would mean the great promise of compulsory super would be even more sure.”
Breaking it down by age, Mr Fahy said a 30-year-old on $70,000 a year who is paying a 9.5 per cent SG and lifting the SG to 12 per cent by 2025 is “well on track to reach the ASFA comfortable standard of living”, provided they retire at 67 and have $50,000 in their super.
However, a 35-year-old on $100,000 with nothing in their super could still start putting money into super today and still have a comfortable retirement.
“At later stages there can be more catching up to do,” Dr Fahy asaid.
According to ASFA, a comfortable lifestyle in retirement allows a healthy retiree to enjoy a “broad range” of leisure activities while having a good standard of living that covers the price of household goods, private health insurance, good clothes, electronic equipment, occasional domestic and international travel and a decent car.
To achieve this, ASFA said singles will need $545,000 in super and couples will require $640,000, assuming retirees draw down all their capital while receiving a part age pension.
That means singles will need $43,694 a year and couples will need $60,063 to achieve a comfortable lifestyle. However, once retirees reach 85, the budget drops to $39,443 for singles and $55,382 for couples.
Dr Fahy said that figure rises dramatically as age increases: a 40-year-old on a $70,000 salary will need “at least” $175,000 in their super currently, while a 50-year-old will need $275,000 and a 60-year-old will require $425,000.
However, a 40-year-old on a $100,000 salary will need $100,000 today to make the comfortable standard and a 50-year-old will need $250,000 in super today to “get comfortable by 67.”
“A 60-year-old on that [$100,000] salary needs to stay on that salary for another seven years to be in comfort by retirement. They also need $410,000 in super today to be on track,” he said.
Dr Fahy responded to a number of “common and erroneous misconceptions” about the super system, and argued that super is not going to “come up short” as a public policy.
“By 2050 we will have reduced the reliance on the full or part aged pension to less than 50 per cent,” he noted.
“The age pension is only 2 to 3 per cent of GDP and will remain contained at that level, thanks to super.”
He also disputed the argument that saving outside of super will deliver better outcomes, calling the system the “best game in town” when it comes to retirement income.
“Concessional tax treatment of superannuation leads to more dollars of savings being invested and higher after-tax investment returns from all forms of investment compared to being directly held by individuals,” Dr Fahy concluded.