04/10/2016

Why the Grattan Institute Analysis of Superannuation

and Household Saving is Misleading
On Monday 3 October the Grattan Institute published an article in The Conversation claiming
superannuation was a small contributor to the retirement savings of ‘average’ Australians and high levels of
non-superannuation savings implied that there was no need to increase the SG to 12%.

The Grattan analysis is flawed because it averages savings of rich and poor, young and old, and people
eligible for the SG and not, to present a picture that bears little relationship the average Australian entering
retirement.

Grattan’s four statistical sins…

1. It averages across high wealth households and low wealth households.
2. It averages across age groups even though the young are unlikely to have saved much in
super.
3. It does not look at employees who will receive SG contributions. In all tables and charts, it
mixes the self-employed (who have other assets) in with employees.
4. It includes the net equity of the owner occupied housing in the analysis, even though few
people convert housing into retirement spending, and most people keep it in reserve in case
it is necessary to fund aged care.

The effect of these statistical sins inflate the apparent assets of low and middle income earners who we
know have very little in the way of financial assets other than super and are especially reliant on the SG to
deliver income over and above the age pension.

ISA’s Phil Gallagher (former head of the Treasury retirement income and intergenerational modelling from
1993 to 2013 and Public Service Medal winner) has reanalysed the ABS data.

Chart 1: Superannuation and other Non-Home Wealth, Percentages for Employees 55-64

Source: ISA analysis of ABS 2013-14 Survey of Income and Housing: Individuals by decile of non-home total wealth

Briefing note 4/10/2016 www.industrysuperaustralia.com @IndustrySuper

Chart 1 gives the results which clearly show that employee households approaching retirement have the vast
majority of their non-home saving in superannuation, except for the top 10% of employees.

This is a vastly different picture than Grattan’s claim that super is a small component of retirement saving on
average (pointing to a figure of 15% of household wealth).

If we look at employees aged 55-64 by deciles of non-home wealth, and like Grattan remove deciles 1 and 2
because of net debt on property and business assets, we find that decile 3 has 88% of non-home assets in
super and even at decile 7, two-thirds of non-home assets are in super.

Do most people have large non-super savings?

Grattan produced charts constructed from ABS and HILDA data to make claims that younger households
‘save a lot’ outside superannuation and that ‘most households have large non-super savings’.

Their charts are constructed by selecting different ages but averaging across their wealth, or by selecting by
wealth but averaging age.

Chart 2 and Table 1 show these claims to be false. By calculating at the individual unit record level (not
averaging) super assets as a share of each individual’s financial assets we can see the significant reliance on
super across all ages of employees:

 Over 50% of employees aged 25 to 34 have more than 80% of their non-home savings in super;
 65% of employees 25-34 have more than half their saving in super.
 More than half of all employees (53%) have over 80% of their non-home saving in super; and
 More than two thirds of all employees (68%) have more than half their non-home saving in super.

Chart 2: Super asset shares shows for most super is their main asset

Source: ISA analysis of ABS 2013-14 Survey of Income and Housing

Briefing note 4/10/2016 www.industrysuperaustralia.com @IndustrySuper

Table 1: Employees - Super as CUMULATIVE percentage non-home wealth by age - ABS SIH
2013-14

Age of Super as cumulative percentage non-home

person wealth
> 81 % >71 % >61% >51% >41% >21% >1% Nil

55 to 64 49.8% 57.3% 64.6% 70.1% 74.2% 84.3% 95.3% 100.0%

45 to 54 55.2% 60.9% 65.0% 69.0% 74.2% 85.3% 96.8% 100.0%
35 to 44 54.8% 61.0% 65.9% 69.7% 74.2% 83.9% 96.3% 100.0%
25 to 34 50.1% 56.1% 60.2% 64.6% 68.9% 78.8% 95.1% 100.0%
All 52.7% 58.9% 63.8% 68.0% 72.6% 82.8% 95.9% 100.0%
Source: ISA analysis of ABS 2013-14 Survey of Income and Housing

Is the Super Guarantee Adequate?

Grattan also uses a replacement rate analysis to argue that theoretical replacement rates can be over 70%.
These replacement rates are exaggerated by:

 No career breaks;
 Using median wages which is largely driven by part-time wages, not full-time workers;
 Not accounting for differences in SG paid and wages received arising from overtime;
 Not looking at couples.
In April 2016 Phil Gallagher undertook new research for the Committee on a Sustainable Retirement Income
which showed that after a 49 year career:

 A couple with average full-time wages, but in which the females career was interrupted by child
raising, could expect a replacement rate of 58.4% - well below the 70% standard; and
 A male on average full-time wages could expect a replacement rate of 63.2%.
The couple would only achieve 84% of the ASFA comfortable retirement standard.

The OECD Pensions at a Glance 2015 (Table 8.3) found that 33.5% of Australians aged 65 and over were in
poverty – the second highest relative poverty rate in the OECD. The Grattan analysis is inconsistent with
OECD Research and with the fact that 60 per cent of pensioners are full rate – suggesting few savings.

ISA will release more work on superannuation and retirement income adequacy shortly.

Briefing note 4/10/2016 www.industrysuperaustralia.com @IndustrySuper