"A bad deal for most workers" - Grattan Institute warns compulsory super increase to 12pc will slice into retirement savings

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Workers could be worse off in retirement despite the scheduled increase in compulsory superannuation to 12 percent in 2024, according to updated research out this morning.

The Grattan Institute warns the legislated increase in the superannuation guarantee from the current 9.5 percent to 12 percent would slice $30,000 from average superannuation savings because of reduced access to the age pension and lower wages.

The modelling suggests a 30 year old worker earning $58,000 today would get less than a one percent boost to retirement incomes by losing 2.5 percent of wages each year in additional superannuation contributions.

Grattan Institute director of household finances Brendan Coates warns that unless employers pick up half the cost of the scheduled increase workers are in for a "super shock".

"Raising compulsory super to 12 percent won't translate into higher retirement incomes for middle income Australians," Mr Coates said.

"They'd sacrifice higher wages in exchange for little or no increase in their retirement incomes. The best evidence is that higher super contributions are paid for via lower wages."

The research argues that higher super at retirement is offset by lower pension payments due to the pension assets test and that pension payments will also fall because the aged pension is indexed to wages which would be lower with higher contributions.

Mr Coates also suggests that higher compulsory superannuation will bite into future budget surpluses with taxpayers funding an extra $2 billion to $2.5 billion in tax breaks to high income earners.

"High compulsory super might be justified if it save the budget money. But in fact higher compulsory super actually costs the budget," Mr Coates said.

However, the Grattan Institute research has been slammed by the actuarial firm Rice Warner which describes the warnings as "an obfuscation of facts".

Senior consultant Nathan Bonarius says Rice Warner research has been "twisted" to suit the Grattan argument that opposes the increase in compulsory contributions from 9.5 percent.

In a statement, Mr Bonarius says the contribution level of 10 to 15 percent is necessary and reasobable to "more people self-sufficient in retirement". 

The warning about "a bad deal for workers" comes as the federal government considers a review of the $2.8 trillion superannuation sector which the Productivity Commission last year described as "an unlucky lottery for some".

Compulsory superannuation was established by the Hawke-Keating Labor government in the early 1990s with the current contribution set to rise to 10 percent in 2021 and 12 percent in July 2025.


Follow Peter Ryan on Twitter @peter_f_ryan