Super benchmarks are inadequate
The average level of superannuation savings will not provide retirement incomes for retirees, and the statutory contributions are not much help for baby boomers either.
This is the key message fromAMPpolicy manager on superannuation incomes, Suzanne Doyle, in her submission to the Senate Select Committee on superannuation, released yesterday.
In the submission, Doyle says the often quoted retirement income adequacy benchmark of 60 per cent of pre-retirement income is unobtainable for baby boomers.
“The average superannuation balance is $57,000 according to our latest income and wealth report,” she says.
“You are not going to get 60 per cent adequacy with balances below $100,000.”
According to AMP, it will take an employee 40 years with the 9 per cent compulsory superannuation contribution rate to reach 60 per cent adequacy.
However, Doyle says the superannuation structure in Australia is good and certainly has the potential to improve.
"Our superannuation industry is immature however, as there are five industry structures (retail, industry, corporate, self-managed and public funds) that have low account balances and high costs due to the grandfathering and system changes," she says.
To improve the superannuation system, AMP is proposing changes to the taxation system on retirement savings.
"The best way to tax retirement savings is under an expenditure tax regime," Doyle says.
"One advantage of this is to crystallise a lot of the changes in recent years and remove grandfather rights, which will make the whole system less complicated."
Doyle says one result from the complexity of superannuation systems has been the creation of a financial planning industry which advises on the various rules and regulations.
Other proposals suggested by AMP include increasing the co-contributions to higher-income groups and make it easier to make voluntary contributions.
Doyle points out many people are barred from making statutory superannuation contributions, including those not working. She believes the work test should be removed for anybody under the age of 75.
The other push is for people to take income stream annuities, rather than lump sums on retirement.
"We urge the government to reform the current suite of complying annuities so they can offer investment choice and increase the guaranteed period on a life annuity to 15 years," she says.
"Something has to be done to make annuities sexier and cheaper."
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