The Intergenerational Report (IGR) has once again confirmed Australia’s compulsory super system has lifted living standards for millions while easing the burden on the aged pension.
Despite an ageing population, lifting the super rate to 12 per cent and the maturing superannuation system will see fewer future Australians rely on the taxpayer-funded aged pension to support themselves in retirement.
“This report shows in the decades ahead Australia’s super system will deliver dignity in retirement for millions while decreasing the taxpayer burden of the aged pension,” Industry Super Australia deputy chief executive Matt Linden said.
“Lifting the super rate to 12 per cent will decrease the reliance on the aged pension, provide private savings to fund future aged care costs and allow the country to deal with lower-than-expected population growth.”
The pension cost is expected to drop from 2.8 per cent of GDP today to 2.1 per cent in 2060.
The proportional decrease in pension costs occurs even as Australia’s older population doubles.
Treasury projects that lifting the super rate to 12 per cent will see median superannuation balances at retirement increase from around $125,000 in 2020-21 to around $460,000 in 2060-61.
In 2020-21 around two-thirds of Australians retiring will have a superannuation balance under $250,000.
In 2060-61, it is projected that only a quarter of Australians will retire with a super balance less than $250,000.
The increased superannuation savings is important as the IGR has found that, due to COVID-19 stalling immigration, Australia will be older than predicted and there will be fewer taxpayers to fund the aged pension.
More Australians will also be relying on their super to pay future aged care costs.
But alarmingly the Treasury report shows that super’s gender gap will persist all the way to 2060, with women still expected to retire with less than man unless urgent action is taken.
While Treasury expects the gap to narrow, if more women make voluntary contributions, men will still retire with more savings than women in 40 years-time.
“The IGR shows existing policy settings will not materially close the gender super gap so additional policies are needed including paying super on parental leave and better targeting tax concessions,” Linden said.
“Australia is one of the few OECD nation’s whose aged pension cost is decreasing, which is incredible considering the impact of an ageing population.”