Wage trade-off for super not rocket science: Frydenberg

Josh Frydenberg says the super system is weighted in favour of maximising retirement income at the expense of cash during people’s working lives.

Treasurer Josh Frydenberg said lifting the super guarantee would increase the retirement ­income of a median earner by $33,000 but “lower their working-life income by around $32,000”. Picture: NCA NewsWire / Gary Ramage

Josh Frydenberg has argued the superannuation system is too heavily weighted in favour of maximising retirement income at the expense of greater cash flow during people’s working lives, labelling deniers as “flat-earthers”.

In a speech to the Council on the Ageing on Friday, the Treasurer said the government’s retirement income review, led by former Treasury official Mike Callaghan, found that a “higher superannuation guarantee means lower wages for employees”.

“No one should be surprised by this or find it controversial. It was part of the original policy design of the superannuation system,” Mr Frydenberg said. “This is not ­rocket science. Anybody who ­denies that there is a trade-off is ­effectively a flat-earther.”

Ahead of the May budget, which will determine whether the government puts a pause on the legislated July 1 superannuation guarantee increase to 10 per cent, Mr Frydenberg reiterated comments about the need to consider the implications of a rise amid the COVID-19 economic shock and recovery.

He said lifting the guarantee would increase the retirement ­income of a median earner by $33,000 but “lower their working-life income by around $32,000”. “Given the compulsory nature of superannuation, this is a trade-off that the system imposes, not one which individuals can choose for themselves,” he said.

“Were it not for compulsion, it would be a matter for each individual to decide how much of today’s income they are prepared to save for their retirement.

“It is simply not true, as some would have us believe, that there is virtually no limit to how high the superannuation guarantee can be increased in the name of delivering ever higher retirement incomes.”

With the super guarantee legislated to increase to 12 per cent by 2025, Mr Frydenberg said for some, “there isn’t a problem that cannot be solved through a higher rate of compulsory superannuation”.

“These myths do nothing to help Australians plan for retirement, to feel more confident or to be more secure in their retirement.” He argued that people with low incomes would be most exposed if the rate increased. The retirement incomes review found a lift in the guarantee “could increase pressure on lower‑income earners during working life”.

It found that if people used their assets effectively, and if the guarantee rate remained at 9.5 per cent, most people could achieve ­“adequate retirement incomes when combined with the Age Pension” and strike a “better balance between their working life and ­retirement incomes.”

Mr Frydenberg said “overwhelmingly retirees currently do not spend all their superannuation before they die”.

“This is despite the fact that retirees today have not benefited from a mature superannuation system their whole working life. The review shows that if nothing changes, by 2060, one in every three dollars paid out of superannuation will be part of a bequest. This raises the question as to whether the answer to lifting the retirement incomes of Australians is more superannuation savings or better guidance about how to maximise their superannuation savings during their retirement.”

He said Treasury had estimated that at the current guarantee rate, using superannuation ­efficiently could “increase the ­median person’s income in retirement by over $100,000”.