Compulsory superannuation rise could hurt low income earners - highly anticipated retirement review warns

A highly anticipated review into Australia's retirement income system has found the current model is "effective, sound and sustainable" but suggests workers will be worse off financially if the superannuation guarantee is increased.

The final report of the Retirement Income Review makes no recommendations on changes to the system but says there is evidence that wages will suffer when the current superannuation guarantee rate rises from the current  9.5 percent to 10 percent next year and 12 percent in 2025.

"A rate of compulsory superannuation that would result in people having an increase in their living standards in retirement may involve an unacceptable reduction in living standards prior to retirement, particularly for lower income earners," the report says.

"The weight of evidence suggests that the majority of increases in the superannuation guarantee come at the expense of growth in take-home wages."

The review into the efficiency of the $3 trillion retirement system was ordered by Treasurer Josh Frydenberg last year, but speculation has grown during the pandemic that the legislated compulsory superannuation increases might be scrapped or put on hold.

However, the report does not suggest derailing the superannuation guarantee increase and found that the current system's cost will grow only marginally by 2060.

"Without compulsory superannuation, middle income earners would not save enough for their retirement," the report says.

While not explicitly recommending the family home should be considered in the aged pension assets test, the report says there is a need for "assets rich but cash poor" retirees to consider accessing the equity in their homes to more effectively draw down on superannuation assets.

"A more efficient system, whereby retirees tap into their existing assets, also eases the reliance on superannuation guarantees and ultimately has a bigger impact on income," the report says.

The review also endorses the aged pension which it describes as "more than a safety net".

"It plays an important role in supplementing the superannuation savings of retirees and allowing them to maintain their living standards," the report says.

"It also provides a buffer for retirees whose retirement income and savings fall due to market volatility and for those who outlive their savings."

The report supports the emergency release of superannuation during the pandemic saying it has helped cushion the economic blow for many Australians in financial distress.

"The benefits of early access to superannuation will exceed the benefits of preserving balances until retirement," the report says.

Treasurer Josh Frydenberg has welcomed the final report but says the observations will play an important role in developing future policy on retirement incomes.

"Our proposed super reforms will benefit Australians to the tune of $17.9 billion over the nexy ten years in the form of lower fees, improved returns and a streamlined superannuation system," Mr Frydenberg said.

Industry superannuation funds have been waiting on the retirement review and likely to welcome the absence of recommendations but will remain suspicious about reforms to the sector in the midst of the pandemic in particular any move to scrap the increase to the superannuation guarantee. 

Follow Peter Ryan on Twitter @peter_f_ryan