A new report has found the government commissioned Retirement Income Review used unrealistic modelling assumptions pumping up the annual retirement income of a median earner by more than 40% – opening the door for proposals to cut or undermine the legislated boost to the Super Guarantee.
The Retirement Income Review claimed a median earner would retire with about $40,000 annual income a year if the super rate was kept at 9.5%, but robust assumptions reveals their average annual retirement income would be just $24,000 as a member of couple – well below adequacy benchmarks.
Industry Super Australia detailed analysis of the modelling underpinning the review shows a series of improper assumptions has pushed most retirees beyond the adequate savings benchmarks, allowing the panel to falsely claim that the current rate of 9.5% is enough.
The only conclusion is that the review worked towards a pre-determined outcome that would support plans, since flagged, to cut working Australians super, and potentially force retirees to sell their home to make up the shortfall.
It used baseline assumptions that showed an inherent gender bias by assuming that all workers receive super contributions for 40 years – yet 75% of women will not, nor will 61% of men. Across all income percentiles women average just 30.1 years of contributions, the male average is 36.2 years.
Modelled out of the existence are parenthood, career breaks, redundancy, illness, owning a business, unpaid super or any other circumstances that would stop people from receiving 40 years of super contributions.
The panel heroically assumes that everyone makes voluntary contributions to their super – no matter their age or income level. When analysis of HILDA data over a 10-year period shows almost 80% of Australians do not salary sacrifice into their super at all.
It also gives everyone the single aged pension – which is higher than a pension for the couple – even though almost 75% of Australians retire as a couple.
It uses a CPI deflator for the aged pension rather than a wage deflator, which ASIC forces super funds to use in projection modelling, this greatly exaggerates retirement income for lower earners.
It then pumps up retirees annul income by assuming all retirees, like clockwork, whittle away their savings at steady pace until they are 93 – not even leaving enough to pay for their own funeral, let alone future aged care costs.
The whole assumption set has the perverse outcome of inflating retirement savings for low and middle-income earners – who depend on the SG – but underestimates the top earners’ savings.
This modelling is not just academic, it has the real-life consequences that MPs could use it to make changes to super that could leave millions of Australians worse off in retirement.
The Retirement Income Review’s flawed base case assumptions include:
- Assigning the entire population continuous 40-year working-life;
- The assumption that all income cohorts make additional contributions via salary sacrifice;
- The assumption all benefits are preserved until retirement and ignoring impact of COVID early release;
- The assumption of no debt at retirement;
- The use of CPI deflator to discount retirement income (including the wage indexed pension);
- The use of an inflexible drawdown of assets that doesn’t reflect observed behaviour or the prudent need for some precautionary saving;
- The focus on single person cameos rather than couples which boosts the value of the aged pension.
Industry Super Australia’s detailed findings were presented to the Crawford School and can be found here: (https://www.industrysuper.com/media/assessingtheretirementincomereview/