Super increase still inadequate according to Deloitte surveyDOWNLOAD
Sunday 2 May 2010: The superannuation guarantee contribution rate increase to 12% by 2020 will be inadequate to support Australians in retirement, according to a Deloitte survey of the Australian financial services industry.
“The Government’s announcement, while a move in the right direction, will fall short of business expectations,” said Deloitte Superannuation Tax partner Noelle Kelleher.
“Australian business does not believe a 12% contribution rate will be adequate to meet the ageing population’s needs,” she said.
Professional services firm Deloitte surveyed the senior management of more than 220 financial services organisations in April 2010 in advance of the Henry Tax review. Almost 90% of respondents believed that the current 9% superannuation contribution rate would not deliver “adequate” retirement incomes.
Noelle Kelleher said, “Almost 62% of respondents to our survey favoured a sliding scale of compulsory contribution rates based on the employee’s age. The top rate would be 15% for those who are 50 years and over, with a 9% contribution rate for employees under 35 years, and 12% for employees between 35 and 49 years.”
The Government’s proposal, in response to the Henry Tax Review, is to increase the superannuation guarantee contribution rate from 9% by 0.25% on 1 July 2013 and again on 1 July 2014. Further increments of 0.5% would apply annually up to 2019-20 when the compulsory superannuation rate would reach 12%.
“The appetite of Australian business is for more,” said Kelleher, who ran the survey.
Financial services businesses would welcome the Government’s review of the superannuation contribution caps from the current $25,000 for concessional contributions and $150,000 for non-concessional contributions, as 84% of respondents to the Deloitte survey believe that the current caps are too low. However while extending the $50,000 cap permanently for individuals aged 50 is welcome, the sting in the tail is that this option is only for those with balances of less than $500,000.
“This does seem counterintuitive,” said Kelleher. “Given the prevailing intelligence that Australians will outlive their super as it currently stands.
“On that basis it is important that the Government has indicated it will consult with the superannuation industry on the operation of the $500,000 threshold. The $500,000 could also send out mixed messages to Australians about how much savings they will need to support them in retirement.
“The last thing we need is for Australians to think that all they need in retirement is $500,000 in superannuation,” She said.
More than 60 percent of respondents to the Deloitte survey believed that there are insufficient incentives for individuals to save. Only 38 percent believe that there are sufficient incentives.
When asked to define what is meant by ‘adequate income in retirement’ the most popular definition was that the person should have a reasonable standard of living (24% of respondents) followed by a person’s retirement income should be equal to 70% of their income pre-retirement (22%).
“The broad range of responses to the definition of adequate income seems to highlight the need to clarify what is meant by adequate income to give context to the adequacy and savings debate and to educate Australians about what to expect in their retirement,” Kelleher said.
To view all of Deloitte’s media releases on the Henry Review, go to the Deloitte Henry Review website here.
NB: See our media releases and research at www.deloitte.com.au