Why Grattan is wrong on super

A campaign by the Grattan Institute against lifting the Superannuation Guarantee rate to 12 per cent is based on a “misleading” model, according to a new Mercer report released today. 

Mercer senior actuary and report author Dr David Knox said the Grattan findings used a series of assumptions that were not realistic for the average Australian.

“Our report is the first to offer a detailed analysis of Grattan’s research assumptions, many of which don’t stack up to closer scrutiny,” Dr Knox said.

“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.”

Mercer’s review found Grattan’s assertions were based on a number of flawed assumptions, including:

• Workers are single when they retire, whereas 70 per cent have a partner and will therefore receive a lower age pension than assumed by Grattan;
• Desired lifestyle is based on the income received in the five years prior to retirement, despite the fact many Australians transition to retirement by reducing income in the last few years;
• Everyone will work until the future pension eligibility age of 67, when in fact most Australians retire a few years before the pension age;
• No allowance being made for half of the population living beyond the age of 92, the projected average life expectancy for a 70-year-old in 2055; and 
• The median income worker having a net replacement rate of 89 per cent of their income before retirement, when Mercer research shows this will be much lower, at just 68 per cent. 

Dr Knox said Grattan’s sole focus on retirement income also failed to consider the need for flexibility to provide retirees with access to capital, an important feature of retirement products.

“Mercer’s research has shown that retirees want a stable income for their whole life, as well as access to capital to provide them with some protection from unexpected expenses that can easily occur during retirement,” he said. 

Dr Knox warned policy makers to approach Grattan’s research with “considerable caution” given it was limited to “a single cameo” that had given rise to “misleading” conclusions.

“It’s critical that any modelling of retirement incomes considers a significant number of cameos to provide policymakers with a better understanding of the implications of different policies,” he said.

“We should recognise that the next generation will face the effects of the changing workforce, reduced home ownership, and financial implications associated with an ageing population. We cannot assume that the future will reflect our past experience. It is much more complex than that.”

Mercer’s report, A Review of Grattan’s Work on Super, can be found here.

 

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Mercer’s more than 25,000 employees are based in 44 countries and the firm operates in over 130 countries. Mercer is a business of Marsh & McLennan Companies (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people with 76,000 colleagues and annualized revenue approaching $17 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit www.mercer.com.au.