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The Superannuation Guarantee – is 9% Enough?

There has been much discussion in the financial services industry recently on whether the compulsory superannuation guarantee (SG) rate of 9% is adequate. At Watson Wyatt, our Actuarial and Employee Benefits Practice undertook research into this to fully explore the issue. We looked at:

• Measures to determine how much an individual needs to accumulate to live with dignity in retirement
• How much a person needs in retirement to meet their spending requirements
• Two scenarios, one with a low income earner, the second with middle income earners to see what happens if they retire at 60, 65, 70 or 75, based on the current SG at 9%
• The economic implications of retirement, taking into account the impact of the ageing population, workforce growth rates and its impact on GDP
• Whether Australians might work till an older age in the future

Our findings were very interesting. Our research highlighted that 9% is an adequate rate for the SG. Because the SG is form of compulsory savings, we believe the level should not be excessive. Our research showed low income earners simply cannot afford to save any more. Adequacy is an individual and subjective concept, because everyone has different needs, lifestyle expectations, risk tolerance, life expectancy and so on. There is clearly no single contribution rate that will produce an adequate level of retirement savings for everyone.

Voluntary savings—the third pillar of our retirement income system—is the best way to for individuals to achieve an adequate retirement income to meet their own needs, supplementing the Age Pension and SG. Therefore, we need to focus more on financial literacy campaigns and financial education to help people to determine their own requirements. We also believe that the Financial Services Regulation (FSR) legislation should be reviewed to make it easier for employers to support, or even provide, financial education at the workplace.

Watson Wyatt’s Actuarial & Employee Benefits Consulting team provides actuarial advice on superannuation and related employee benefits. We are fully independent, specialising only in consulting. We do not have our own investment or insurance products.

We look forward to sharing more of our ideas with you in the future.

For further information, please contact

Andrew Boal
Managing Director
Watson Wyatt Australia

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