High earners cut back on super



By Tim Blue

Roller-coaster rides in sharemarkets and stagnant investment earnings are prompting Australians to shun superannuation as a way to save for retirement, with big falls reported in personal contributions above the 9 per cent legal minimum.

The fall sharply undermined a partial market rebound in the six months to last December, to push an AMP Retirement Adequacy index down to 68.5, its lowest for more than four years.

Average contribution rates fell to 12.4 per cent of all salaries, from a peak of 17.2 per cent in June 2007 when high-income earners were slinging hundreds of thousands of extra dollars into superannuation, only to lose it in the market crash.

High-income earners now appear the least content with extra super payments, with contributions falling from 28.6 per cent of salaries to 25.1 per cent, according to the AMP index released yesterday.

Modelling to examine retirement incomes was conducted by Access Economics, based on more than 320,000 superannuation accounts held in AMP corporate superannuation funds.

Access Economics director Chris Richardson said part of the cut was a result of the federal government’s “blunt instrument” cap on concessional contributions of $50,000 a year for those over age 50, and $25,000 a year for those under 50. This slashed the Howard’s government cap on concessional contributions of $500,000.

“But the state of the markets has also led people to cut back, which will be a mistake in the long term,” he said.

“Australians need to realise that the average male is living 9.4 years longer than their father, and the average female is living 7.8 years longer than their mother.”

Retirement savings are being crimped at both ends of the income spectrum, with a government cut in co-contributions to super for low-income earners last year. While workers are slipping behind the savings they need to fund a comfortable retirement, more hope is held for future retirement savings levels, with the Labor government’s decision to increase the super guarantee to 12 per cent, starting in three years.

The increase is expected to boost average annual net retirement incomes by $1795, taking the average annual net retirement income to $45,710.

AMP managing director Craig Dunn said recent changes in superannuation by the government demonstrated its commitment to a robust and sustainable system for generations to come.

“It’s the children of today’s workers, those yet to enter the workforce, who will reap the greatest benefits, with their retirement adequacy expected to be around 75 per cent of their income — 10 per cent more than the current 65 per cent benchmark,” Mr Dunn said.

Factoring in an increase to the guarantee to 12 per cent, the index reveals 20- to 24-year-olds are likely to have an extra $107,535 in assets in today’s dollars when they retire, while a 30- to 34-year-old will have on average $59,737 extra.

Investment market gains in the last six months of last year lifted average super balances by close to 5.8 per cent, or $2192, but have since been eroded by slippages.

Financial Services Minister Chris Bowen told the launch of the report yesterday that voters going to the polls should remember that the opposition had pledged to roll back the planned lift in guarantee rates. “Their policy pretty clearly is that they will not go from 9 per cent to 12 per cent,” he said.

“In May Mr (Tony) Abbott said quite explicitly that the opposition would not embrace the change.

“Then he said he would not rule it out in the longer term, then that they would not reduce the contribution tax to zero, and nor would they allow the concessions to improve top-ups for the over-50s.”

Article from The Australian, August 5, 2010.