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Australia
Melbourne, 24 February 2010

New research from Mercer dispels the myth that superannuation tax concessions have led to high income earners receiving the lion’s share of government support for retirement income.

The relative level of government support for individuals should take into account both superannuation tax concessions and the government funded aged pension. Taking this approach, Mercer’s analysis found the total government support for retirement income is remarkably equal across a variety of income levels, including low, middle and higher income earners (Figure 1).

Furthermore, when comparing the support provided for couples (Figure 2) across seven income levels, Mercer’s research revealed the total level of support provided by the government actually decreases as income rises or as superannuation contributions increase.

Currently, all concessional superannuation contributions are taxed at 15 per cent, irrespective of the individual’s marginal tax rate. This has led to concerns over whether the system is biased towards high income earners, who are perceived to receive more government support for retirement incomes than low income earners.

Dr David Knox, Partner in Mercer’s Retirement, Risk and Finance consulting business said the research cast new light into the debate around the cost and equity of superannuation tax concessions.

“Much of the criticism of tax concessions fails to take into account the direct link between the level of retirement and savings and reliance on the aged pension. When considering the cost of superannuation tax concessions, looking at the tax concessions only tells half the story.

“As we expected, this research shows that those with higher incomes or receiving higher salary increases do receive a higher level of superannuation tax concessions than low income earners - but they are also likely to receive a lower level of government funded age pension. What is interesting is the overall cost to the government is roughly the same, regardless of whether the funding is weighted towards tax concessions for a higher income earner or providing the aged pension to a person who needs to top up their income in retirement.”

Mercer’s analysis also showed that if superannuation contributions were increased to 12 per cent, whilst total income in retirement would be greater, the total level of support required from the government for retirement income would actually decrease slightly for most individuals.

Dr Knox said most individuals who received a higher level of employer contributions, either through salary sacrifice or a higher Superannuation Guarantee would receive a lower level of total government support due to the effect of super on the projected age pension payouts.

“This adds weight to the argument for increasing the Superannuation Guarantee to 12 per cent, particularly in light of the increased pressures our ageing population will place on government budgets in future decades.”

“These findings really underline the argument that any future tax changes should not reduce the taxation incentives for Australians to save for their future retirement needs through superannuation.”

Figure 1: The level of total government support for a single male assuming an employer superannuation contribution rate of 9% pa

Figure 2: The level of total government support for a couple assuming an employer superannuation contribution rate of 9% pa

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