Super war of words now also a war of numbers

The superannuation guarantee is at the centre of an exchange of barbs between representatives of rival camps in the debate.

Mercer senior actuary David Knox ... the Grattan Institute’s work is “based on a series of assumptions that are not realistic for the average Australian”.

One of Australia’s top retirement income experts, Mercer senior actuary David Knox, has labelled the Grattan Institute’s campaign against any further increase to the superannuation guarantee as “very misleading” in a detailed rebuke to the think tank.

In another war of words over the future of the superannuation sector, Grattan program director Brendan Coates fired back, arguing Mercer’s critique was “uncharacteristically misinformed”.

The Grattan Institute has helped build momentum among Coalition backbenchers who want to freeze the rate at which workers are forced to lock away their wages until retirement.

But Dr Knox has hit back at the Grattan Institute’s argument that — at a current 9.5 per cent contribution rate — most Australians could look forward to receiving an income in retirement close to their pre-retirement wage. This was “simply not true”, Dr Knox said.

Dr Knox, who works for retail super provider Mercer, which manages more than $20 billion in savings, said the Grattan Institute’s work was “based on a series of assumptions that are not realistic for the average Australian”.

He said Grattan had overlooked the fact only 70 per cent of retirees had a partner and that many people in their late career downshifted their responsibilities and income, as well as the fact that most Australians did not and would not work up to the pension age, soon to be 67.

Dr Knox said one of the main problems with the Grattan Institute’s work was that it inflated the proportion of retirees receiving the full-rate age pension for singles, which made a big difference to the amount of age pension received in retirement.

Rather than the median income earner enjoying a post-retirement income of 89 per cent of their pre-retirement salary, or an average replacement income of 78 per cent, as modelled by the Grattan Institute, Dr Knox said these figures were more likely to be 68 and 58 per cent respectively.

“In light of the recent announcement of a review of Australia’s retirement income system, it is vital to counter misleading conclusions to ensure all discussion and debate is grounded in reality and typical behaviour,” he said.

Mr Coates said Dr Knox was defending the funds management industry by comparing likely retirement incomes to the salaries of 45-50-year-olds, who are likely to be earning their peak wage to pay for the cost of raising children and a mortgage. He said a more realistic forecast would compare retirement incomes to the salaries of workers closer to retirement, when most don’t have dependants and choose to work less.

“Mercer is benchmarking retirement incomes against an idyllic pre-retirement living standard that Australian workers never actually enjoy,” Mr Coates said. “Retirement incomes policy needs to acknowledge the trade-offs between higher living standards when retired against lower living standards when working. And modelling should reflect the reality of what Australians’ spending needs are. Unfortunately Mercer’s work does neither.”

He also said while Grattan had been “very upfront” about the assumptions underlying its economic modelling, Mercer had left those in “a black box, which makes some very strange conclusions”.