By Ari Sharp
A MAJOR superannuation group has sought to reopen debate on increasing compulsory super contribution beyond the current 9 per cent, proposing an extra 3 per cent that can only be taken in small regular payments after retirement.
In May, the committee chaired by Treasury secretary Ken Henry looking at the tax system recommended against any increase in compulsory super beyond the current 9 per cent despite vocal objections that the existing system would leave people struggling to make ends meet in retirement.
But the Australian Institute of Superannuation Trustees, the main industry body for the $400 billion non-profit super sector, has constructed an alternative proposal it hopes will win the support of the Henry review when it delivers its final report late this year.
In its second submission, details of which were revealed at an industry lunch in Canberra yesterday, it argues for an extra 3 per cent forced contribution, but for that payment to be taken as an annuity on retirement.
The super trustee body argues this would not only help bolster retirement incomes but would also alleviate longevity risk - the danger that retirees will exhaust their super funds - because it would not be accessible as a lump sum upon retirement.
''We acknowledge there is a community expectation that the 9 per cent will be available as a lump sum,'' said the trustee group's chief executive, Fiona Reynolds. ''However, in the future, as life expectancies rise we may need to think about taking some of our super as an income stream.''
In its May report on the retirement income system, the Henry review found the current guarantee would provide adequate retirement income for low and middle-income earners who had a working life of at least 35 years. It argued that instead of boosting contributions, more could be achieved by shifting the preservation age before people could access their pension from 65 to 67, a recommendation adopted by the Government.
Superannuation Minister Chris Bowen, who started in the role in June, left open the door to increasing compulsory super contributions. ''Ken Henry's preliminary view is that 9 per cent is adequate,'' he said last month. ''I think we, as a nation, have to think about whether adequate is good enough.''
Figures cited by the super trustee group show the current 9 per cent super guarantee will deliver a replacement rate of only about 30 per cent of pre-retirement income for the average 25 years in retirement. Raising the guarantee to 12 per cent would raise this figure to nearly 40 per cent of pre-retirement income.
Recent research from the Organisation for Economic Co-operation and Development found Australia's retirement incomes are among the lowest in the developed world.