Former prime minister and founding father of superannuation Paul Keating has suggested big picture improvements to Australia’s superannuation system.
“The policy promise of superannuation is understood by people as having a good retirement but adequacy with longevity means that promise cannot be fulfilled so the promise has to change,” Mr Keating said at the opening of the Association of Superannuation Funds of Australia’s (ASFA’s) national conference in Sydney yesterday.
Mr Keating promoted a deferred annuity system for income during ‘phase two’ of retirement as a necessary evolution of the superannuation system.
“Fundamentally, we built something that took people from age 55 to 75; now of course, it’s a completely different profile as to when the money is needed,” he said.
“In effect, because of longevity, we have two groups in retirement: a 60-80 [years] group, who are more about retirement living and lifestyle, and we have an 80-100 group, who are more about maintenance and disability, less about lifestyle.”
To ensure Australians had adequate retirement income during that period of life beyond normal life expectancy, Mr Keating proposed an approach that would put away a portion of the superannuation lump sum.
“A portion of the lump sum, when it becomes available, [should be] compulsorily set aside in a deferred annuity, a prepayment which kicks back in at, say, 80 or 85 years old,” he said.
“This would mean that the compound earnings on say 20 to 25 per cent of the lump sum would accumulate between the ages of 60 and 80, to be available on a deferred basis from 80.”
As an alternative, Mr Keating advocated a further 3 percentage point increase to the superannuation guarantee (SG), which would bring the current government’s announcement of 12 per cent compulsory SG to 15 per cent.
“That 12 per cent of all wage and salaries representing a little of savings marks Australia out from most countries in the world,” Mr Keating said.
“Is it enough? The answer to that question is no, because people are simply living longer now than they were when we created [this system].”
The 15 per cent in compulsory savings would be devoted to health maintenance, income support and aged care, he said.
Furthermore, the Australian public’s expectation of superannuation’s rate of return was too high, Mr Keating said.
“The Australian superannuation system is not only large in world terms, it is large in absolute terms,” he said.
“Currently, the system has $1.4 trillion in assets. It is simply too large in aggregate to consistently return high single or double digit returns.”
The Keating government introduced compulsory SG in 1992.
