Examining the changes to retirement income savings

The degree to which recent Federal Government changes have helped bridge the retirement incomes savings gap will be closely examined at this year’s Investment and Financial Services Association (IFSA) annual conference in Brisbane when leading actuarial firm, Rice Walker, updates the report it presented two years ago.

On the last day of the conference, Rice Walker director, Michael Rice, will give a presentation titled From here to adequacy: The Retirement Savings Gap two years’ on.

What will be important about the Rice Walker Research is that it will represent one of the early steps in the actuarial company’s new joint venture relationship with the Australian National University — something which is expected to result in an even deeper examination of the Australian retirement savings landscape.

However, research released by IFSA ahead of the 2005 annual conference suggests that Rice Walker will be able to report some serious progress in addressing the retirement savings gap over the past two years.

That research points to the Government’s Budget decision to abolishing the superannuation surcharge and the changes to the personal tax thresholds and claims it has renewed faith in superannuation as an effective vehicle for retirement savings.

The research, conducted by Eureka Strategic Research, found that more than half of the respondents to a survey said they would definitely make additional contributions to superannuation over the next 12 months.

Commenting on the research outcome, IFSA chief executive Richard Gilbert said it suggested that Australian workers on higher income scales had indicated they were preparing to take advantage of what amounted to the biggest tax reduction on superannuation in recent history.

“Fifteen per cent of those surveyed who didn’t make additional contributions to super in the last 12 months have indicated that they are now likely to make a contribution in the next 12 months,” Gilbert said. “This puts the total positive responses by those intending to make additional super contributions at 54 per cent of the sample group surveyed.”

He said it would be reasonable to assume that quite a few people would at least employ the simple strategy of electing to keep their take-home pay the same and sacrificing the extra salary to their super in order to boost their retirement savings.

When Rice Walker two years ago produced its first retirement savings gap report, it identified a retirement savings gap of $600 billion which IFSA at that time described as a “call to action” for policy-makers and the superannuation industry to make the necessary changes to boost retirement savings.

At the time IFSA outlined a number of policy objectives, a number of which have since been implemented by the Federal Government including the co-contribution regime and the abolition of the superannuation surcharge.

However, some of its other recommendations, including fundamental changes to the application of the superannuation tax regime have not occurred.

The 2003 Rice Walker findings on the retirement incomes gap were later validated by work commissioned by the Treasury ahead of Treasurer Peter Costello’s landmark retirement incomes savings announcement in early 2004.