Compulsory super detrimental: Research

Compulsory superannuation is detrimental to many people and a voluntary super system would provide greater benefit, according to new research.

The Centre for Independent Studies (CIS) believes voluntary super would be superior to the current compulsory system which stifles homeownership rates..

The argument was made in a policy paper penned by Simon Cowan for the institute.

Cowan is research director at CIS the director of CIS TARGET30, which aims to reduce government spending to less than 30% of GDP over the next 10 years.

His argument against compulsory super is that the current system is having a negative effect on homeownership and owning a home is the single biggest factor in determining whether someone has a comfortable retirement.

For homeowners and non-homeowners receiving the full rate of the aged pension, homeowners have approximately nine times the net worth of non-homeowners, Cowan writes.

Using that statistic, CIS suggests millennials would be better off with a home in retirement than with a super balance.

The paper argues that Australians can be comfortable in retirement without a super balance, saying the median super balance in retirement is currently zero. For this statistic, he cites a 2015 Productivity Commission report.

"It is far harder to be comfortable if you do not own your home, suggesting that in terms of retirement priorities, homeownership should rank above increasing superannuation balances," CIS states.

"For millennials in particular, the first generation to enter the workforce with super contributions amounting to nearly 10% of income, these questions are crucial."

CIS points out that since compulsory super contributions were introduced in the early 1990s, the ratio of average house prices to incomes has continue to worsen - though it does explain that correlation does not equal causation.

The average deposit as a multiple of average earnings has almost doubled between 2000 and 2015.

"As millennials are trying to save hundreds of thousands of dollars in order to get on the bottom rung of the property ladder, their income is docked nearly 10% to save for their retirement," Cowan writes.

Home ownership has fallen amongst every age group in Australia during this period. The paper points out that it has fallen the most dramatically amongst the 25-34 and 35-44 age cohorts.

CIS said few Australians save for retirement because they trust their super balance will be there - but saving for a deposit actually is saving for retirement given how much better off those with homes are than those without.

Read more: superannuationSimon CowanCentre for Independent StudiesProductivity Commission
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