“Most Australians will be comfortable in retirement,” Grattan Institute
Calls to keep the super guarantee at 9.5% rather than the proposed 12%, and instead reduce super fund fees.
The Grattan Institute has today released a report which offers a refreshing perspective on the state of Australians' retirement savings: that most of us will have enough super when we retire. Despite it being widely reported across the media that Australians will have far from enough money to fund their retirement, Grattan Institute says "the vast majority of retirees today and in future are likely to be financially comfortable".
Financial modelling done by Grattan Institute shows that most Australian workers will retire on an income that's at least 91% of their pre-retirement income, even after taking into account the rate of inflation. They even go so far as to say that many low-income earners can even look forward to a pay rise after they retire, thanks to the combination of Age Pension payments along with their super. Australians don't seem to believe this, with six in ten Australians thinking they won't have super to fund their retirement.
The Grattan Institute report also suggests the ASFA Retirement Standard, which recommends Australians need around $550,000 in retirement savings for a comfortable retirement, is too generous. The report said, "Australians tend to spend less after they retire, and even less into old age. Their medical costs increase, but are largely covered by the taxpayer." Elsewhere it's been suggested that Australians need over $1 million in super to retire comfortably.
Don't raise the super guarantee to 12%, reduce super fees instead
The Grattan Institute said the government's plans to increase the super guarantee were unnecessary. "Because most Australians will be comfortable in retirement, there is no need to boost retirement incomes across the board. The legislated plan to increase compulsory superannuation contributions from 9.5% to 12% should be scrapped."
Instead, it suggested it would be more valuable to reduce the fees charged on super funds. One suggestion was to implement a tender process where funds compete to be offered as the default fund by workplaces, which might entice the funds to lower their fees.
CEO of leading online investment adviser Stockspot Chris Brycki agrees that the issue lies with the fees charged by super funds. "We agree with the Grattan proposal for a tender process for default super to reduce fees. We estimate the impact of this would put an additional $10 billion back into the pockets of Australians' retirement savings each year and would far outweigh increasing the super guarantee to 12%."
According to data from Stockspot's 2018 Fat Cat Report, an annual report that identifies the most expensive "fat cat" and cheapest "fit cat" super funds in the market, millennials stand to lose almost a quarter of a million dollars due to high super fees. "We find that many Millennials paying 1.5% per year or more in super fund fees are likely to lose over $200,000 in their lifetime due to unnecessarily high fees - that's the equivalent of the latest Tesla Model X! Ask anyone if they'd rather pay fees to a super fund or have a Tesla parked in their driveway and we're sure you'd get the same resounding response," said Brycki.
Take a look at our superannuation comparison powered by Chant West to see how your current super fund compares on fees.
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