Australian households are $500 billion better off because of the compulsory superannuation system, according to new research.
The latest report from the Association of Superannuation Funds of Australia (ASFA) estimates compulsory super has added $500 billion to Australian households' savings that they would otherwise be without. Of this, about $35 billion can be attributed to those in the lowest income quintile.
"Although estimates of net saving vary, most point to a sizable positive effect. Broadly speaking, studies have found that for each dollar of saving via compulsory superannuation, net saving is likely to be no less than 60 cents, and possibly much higher," the report reads.
"The most oft-cited study estimates a net effect of 62 cents in the dollar."
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This suggests Australian households are saving a much higher proportion of current household income than would otherwise be the case.
Therefore, ASFA says the superannuation guarantee is not only doing its job but has benefitted the economy as a whole and will continue to do so, stabilising Age Pension expenditure.
Assuming the SG is raised to 12%, the amount spent on the Age Pension should drop to 2.6% of GDP over the period to 2054-55, ASFA predicts.
In contrast, OECD expenditure on public pensions averages 8.8% of GDP and is expected to increase to 9.4% in the next 30 years.
ASFA argued that raising the SG to 12% will better align Australia with the pension systems of other advanced economies.
Touching on recent arguments surrounding the hit taken by Australia's super savings during COVID-19, ASFA reinforces the long-term nature of super, saying that while the ASX S&P200 fell 37% in the four weeks from mid-February, since the SG's inception in 1992, the index has risen about 6% on average each year.
Further, ASFA anticipates that by 2050 half of all retirees will have achieved its Comfortable Retirement Standard, which is currently $44,200 per year for a single person or $62,400 for a couple.
Still, women will continue to be disadvantaged. As the SG increases, a man who enters the workforce today and earns a median wage is expected to reach a retirement balance of $545,000. A woman can expect to retire with about $100,000 less, according to the calculations.
In concluding its findings, ASFA has called for the SG to be extended to the self-employed, who typically account for about 10% of the total workforce and have lower average super account balances than employees in equivalent circumstances.