Australians are retiring with more than enough, according to new research from Grattan Institute but ISA and ASFA don't agree.
Grattan Institute modelling found that most workers can expect retirement income of at least 91% of their pre-retirement income, even after allowing for inflation. This is above the OECD-endorsed 70% benchmark.
Hence the legislation to ramp up compulsory super contributions to 12% should be scrapped, putting about $2 billion back into the budget every year, the independent think tank said.
Grattan Institute chief executive John Daley said: "The financial services industry 'fear factory' encourages Australians to worry unnecessarily about whether they'll have enough money in retirement."
|Sponsored by Franklin Templeton|
How much further can global growth fly?
"Australians tend to spend less after they retire, and even less into old age. Their medical costs increase, but are largely covered by the taxpayer. Many retirees are net savers, and current retirees often leave a legacy almost as large as their nest egg on the day they retired," it said in a statement.
Different story for the poorest
Despite its positive outlook on retirement income, Grattan thinks the retirement incomes system is not working for some low-income Australians who rent, particularly in Sydney and Melbourne.
"And this problem will get worse because on current trends home ownership for over-65s will decline from 76% today to 57%by 2056," the report said.
The report calls for a 40%increase in the maximum rate of Commonwealth Rent Assistance - worth more than $1,400 a year for a single retiree. It also wants to loosen the Age Pension assets test, saying it could boost retirement incomes for around 20% of retirees today, rising to more than 70% of retirees in future.
ISA lashes out
ISAspecial retirement income adviser Phil Gallagher said the assumptions used by Grattan in its model were dubious, unrealistic and unrepresentative of most Australian employees.
"Across all age groups just 12.2% of employees with super make additional concessional contributions but Grattan appear to have assumed that everyone does," Gallagher said.
"This loads up contributions and inflates retirement balances significantly. The methodology adopted appears to skew up contributions for lower earners in particular, resulting in retirement balance projections that are potentially inflated by as much as 45%.
"There are many other problems including assuming an unbroken career which is not at all representative for women, and setting retirement benchmarks that are not pegged to community living standards. This lowers the benchmark making surpassing it easier to achieve," Gallagher said.
Gallagher headed the Treasury's retirement income modelling unit for 21 years, starting in 1993.
Point of agreement
One point of agreement between the think tank and ISA is on Grattan's conclusions about the Age Pension.
ISA thinks there is a need to adjust the asset test to restore coherent savings incentives.
Grattan Institute is funded from an endowment fund to which BHP Billiton, NAB, Myer Foundation and Federal and Victorian Governments have donated. The Institute's board controls the endowment, to safeguard its independence, the think tank said.
Association of Super Funds Australia (ASFA) chief executive Martin Fahy said Grattan Institute report was an "unprecedented attack".
He slammed Grattan's call to shelve the 12% SG, saying it would put pressure on future taxpayers. Fahy also said the Grattan analysis sets an extremely low bar for adequacy, seeing the Henderson poverty line as relatively generous.
"The Grattan analysis in effect wants people in retirement not to have heating in winter, not to take vacations, to get rid of the car, and skimp on prescriptions and other out-of-pocket health care costs," Fahy said.
"This report is about two Australia's, where the well-heeled high earners have a fully funded retirement and the rest rely on the State."
"The Grattan Institute wants to dismantle our world class retirement funding system and replace it with a model that has two thirds of the population relying on the Age Pension."