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expenditures that would flow from greater
superannuation savings and private retirement
income was seen as desirable, given an ageing
population structure. However, this objective
was not the primary objective. As well, there
never was any expectation or intention that
superannuation would entirely replace the
Age Pension for many or most employees. The
proposal was about boosting retirement incomes,
not changing who was paying the cost of
There was certainly interest in who was getting
the benefit of tax concessions for superannuation,
but it was focused on more workers getting
Evaluated against those original objectives,
compulsory superannuation, supported by tax
concessions for both compulsory and voluntary
contributions and associated investment earnings,
has been successful. Retirement incomes are
up, national savings are up, and Age Pension
expenditure is lower than it would otherwise be.
Estimates prepared by ASFA indicate that
more than $7 billion a year is already cut from
the Age Pension bill, due to individuals having
Going forward, this will increase, as both the
aggregate amount in superannuation increases,
and as balances at the time of retirement increase.
Given that contributions only reached nine per
cent in 2002, and are still some years away from
reaching twelve per cent of wages, it will be
some decades before the system fully matures
with most people retiring having the benefit of
contributions over an extended period of at least
nine per cent.
There is also the matter of many current retirees
never having had the benefit of superannuation
contributions. For instance, it would be unrealistic
to expect that compulsory superannuation will
decrease the reliance on the Age Pension of those
who retired 20 or 30 years ago.
However, the impact on younger retirees is
already significant. Figures on the take-up of the
Age Pension by specific age groups indicates that
a substantial proportion of those currently aged
65 to 67 are fully self-funded. Around 32 per cent
of those aged 65 in 2013 were fully self-funded
in retirement, up from 22 per cent in 2000.
However, at age 75, only 16 per cent of people
were self-funded, which is not that different to
the level in 2000.
Future cohorts of retirees are likely to have
significantly different levels of
private income and Age Pension entitlement,
compared to those who retired some years ago.
Projections prepared by ASFA indicate that, while
an individual with the current average amount
of superannuation will receive a substantial part
Age Pension, by the year 2026, the majority
of their retirement income will come from
superannuation. In today’s dollars, the projected
amounts are $14,770 a year from the Age
Pension and $19, 340 from superannuation.
Our projections also indicate that for those
turning 65 in 2026, around 40 per cent of retirees
will be fully self-funded.
These various numbers are somewhat
different from some of the projections in the
last Intergenerational Report (IGR). There are a
number of reasons for that. The last IGR was
prepared in 2010, prior to the announced increase
in the rate of compulsory contributions and just
after the global financial crisis, which led to lower
account balances for many individuals. It also was
prepared before there were increases recorded in
both the percentage of fully self-funded retires at
age 65 and higher rates of employment at around
age 65. Finally, most of its projections related to
the circumstances of all people aged 65 and over.
What is more relevant is the impact on those
who have received the benefit of compulsory
contributions over an extended period of time.
While there is scope to refine tax and other
policy settings for superannuation, it would be
foolish to ‘throw the baby out with the bathwater’
and dismantle the current tax treatment of
superannuation because it is not currently making
all retirees fully self-funded. Superannuation is
already a large and healthy baby, and it should be
allowed to grow into a healthy adult.
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