Title : Want to be independent in retirement? You might need to up your super contribution to 18 per cent
link : Want to be independent in retirement? You might need to up your super contribution to 18 per cent
Want to be independent in retirement? You might need to up your super contribution to 18 per cent
Former treasurer Peter Costello says Australians will not have enough money to become self-funded retirees if they rely solely on employer contributions to superannuation.
Key points:
- Compulsory employer superannuation contributions are set at 9.5 per cent
- Peter Costello says employer contributions to super will not be enough for someone to become a self-funded retiree
- Professor Susan Thorp says an 18 per cent super contribution would be required to become a self-funded retiree
"If you truly want to become independent of the government, a self-funded retiree, live off superannuation, you're going to have to put your own money in," Mr Costello told 7.30.
"The occupational superannuation is not going to do it."
Professor Susan Thorp from the University of Sydney Business School said people would need to contribute much more than the current compulsory super rate to become a self-funded retiree.
"If it were the case that people actually wanted to become entirely independent of the age pension, for example, they would probably need to start contributing about 18 per cent at the beginning of their working life and contribute that all the way through their working life," she told 7.30.
"Most of us are, I think, probably realistically not prepared to do that."
Compulsory employer contributions to superannuation are currently set at 9.5 per cent.
The rate is legislated to reach 12 per cent in 2025.
Last year a Grattan Institute report suggested most people would have enough money to retire on if the compulsory super rate was left at 9.5 per cent.
Former prime minister Paul Keating disagreed, saying 12 per cent would "barely cut it".
According to the Australian Bureau of Statistics, currently only 21 per cent of Australians are self-funding their retirement; 27 per cent supplement their own savings with aged pension payments; and 52 per cent of Australian retirees rely entirely on the pension. These figures have remained roughly the same since the late 1990s.
'Super wasn't on my horizon'
Retiree Peter Bastick, 69, started paying superannuation about halfway through his working life as a journalist.
"I never really considered life beyond work," he said.
"Superannuation just wasn't on my horizon. And for that I'm personally negligent because now I'm living with the consequence of not having a larger nest egg."
Not helping matters is the fact he was charged a fee of over $2,500 when he changed super accounts.
Accountant Jennie Lyn said Mr Bastick's situation is quite typical.
"He was never interested in his superannuation, it always just happened. And I think that's very typical of what happens now with people in the superannuating," she said.
"They don't believe it's their money, the employer pays it, it goes into an account, they don't take much interest in it."
Mr Costello agreed that many people feel disassociated from their super.
"For most people they don't choose to go into it. The money is taken out of their wage by law. They know they can't get hold of it for 20 or 30 or 40 years," he said.
"They don't feel as if it's theirs, they don't feel as if they own it.
"The government concentrated on getting money into superannuation by law, but didn't show much interest in what happened to it. Basically said, now it's someone else's responsibility."
'Retirement something I didn't really think about'
Robin Dougherty, 81, lives entirely on the aged pension. A widow, she retired from her job in hospital administration with very little super and does not own her own home.
"I really thought that I would just keep working, and then one day I would just die. But it didn't work out like that," Ms Dougherty said.
"Retirement was something I didn't even really think about.
"I'd only been in superannuation for 16 years and I didn't see it. We were never shown anything to tell us this was really for our future, to keep us going when we retied."
Public housing now keeps a roof over Ms Dougherty's head.
"I have friends who I've known for years and who did well and they had help over the years. They're all going on cruises, they're spending their money," she said.
"But I enjoyed my life before I got old, so I'm not at all envious of them.
"Maybe sometimes."
Paul Howes, KPMG's partner in charge of wealth management, said Australian superannuation was failing women.
"The system I think has failed working women and one of the big flaws in the system was not recognising that inequality in the original design," Mr Howes said.
Watch part one of 7.30's superannuation special tonight.
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