Rice Warner's Nathan Bonarius

Rice Warner has lashed out at the Grattan Institute, condemning it for “obfuscation of the facts” in its latest research on the impact of a higher superannuation guarantee.

According to the Institute, lifting the SG to 12 per cent will make middle Australia poorer. The institute calculates it would cost today’s typical 30-year-old Australian worker $30,000.

“Of course, projecting future retirement incomes requires making assumptions, and sometimes the assumptions can have a big impact on the conclusions,” the Institute said in a blog. “It shows that on any reasonable assumptions, more compulsory super makes middle-income Australians worse off.”

The problem is the Grattan Institute used Rice Warner’s own model to back its findings that the current SG level of 9.5 per cent is sufficient.

Michael Rice and Nathan Bonarius, who co-wrote the report, said: “Far from supporting Grattan’s long-standing hypothesis, our paper concluded that a level of 10 per cent to 15 per cent was necessary to achieve the system objectives, including the reasonable one of making more people self-sufficient in retirement.

“Since then, Grattan has come out with another sensational claim that raising the SG to 12 per cent would cost average workers $30,000 each.  In fact, its analysis has less to do with the SG level, but is more about the issues of means-testing of the age pension.

“In twisting our argument, Grattan also erroneously claimed… we (at Rice Warner) believe increasing the SG would have huge fiscal costs not only in the short term but also in the long term.”

Rice Warner also argued that Grattan has forgotten the reasons for introducing the SG and its original target level of 12 per cent.

“In 1992, the then treasurer, John Dawkins provided a detailed document outlining the rationale for the new retirement incomes policy.

“At the time, the policy was contrasted against the counterfactual of raising the age pension to 35 per cent of [average weekly earnings], the alternative policy required to provide a similar increase in after-tax retirement benefits in aggregate.”

This illustration is important, the duo argued, because increases to the SG provide value independent of savings to the budget alone through the delivery of higher living standards. “Without this context we are left with the proverbial position of knowing the price of everything, but the value of nothing.

“We recognise that there will need to be continual review of tax concessions and age pension eligibility to ensure fairness in the system, but this is relatively easy to do following each quinquennial Intergenerational Report.”

“The fact is that increasing the SG costs much less than we think but delivers benefits to all Australians through strong real returns and enhanced retirement benefits and reduced reliance on social security systems.”

In responding to the Grattan Institute’s attack today on the legislated increase in the SG Guarantee to 12 per cent, Association of Superannuation Funds of Australia head Martin Fahy pointed to the recent survey of 1,000 Australians which found around 90 per cent of people supported compulsory superannuation and 80 per cent supported lifting the SG to 12 per cent.

“Next year’s Inter-generational Report will provide an opportunity to see the positive impacts that superannuation is having, and will have, on the cost of funding the age pension, the number of partially and fully funded retirees and the success of our retirement system compared to the pay-as-you-go models of Europe and elsewhere which are advocated by the Grattan Institute,” concluded Fahy.

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