AUSTRALIA - An ‘opt-out' superannuation scheme on top of the existing 9% compulsory superannuation regime would boost the national retirement savings pool by 3.6%, according to research.
The finding was revealed in economic analysis released by Finsia, the financial services institute of Australasia.
Finsia analysed the forward projections of three policy options which aimed to encourage ‘frontend’ savings for retirement and fix the ‘policy black hole’ faced by current middle income earners.
Doug Ross, economist and chief architect of Access Economics, who conducted the research, said an ‘opt-out’ scheme would be well suited to the retirement saving plans of the under 40s, combating the looming costs of an ageing population.
“If one in four workers participated in the scheme then overall retiree benefits would increase by 3.6% and significantly reduce taxpayers’ support of age pension costs,” he said
“For participating contributors on average income, this represents a 33% boost to their final retirement benefit.”
Brian Salter, Finsia’s chief executive officer, warned overcoming short-sightedness and procrastination would be a policy challenge.
But he argued the combination of a compulsory superannuation ‘floor’ with an additional voluntary, but default, 3% superannuation contribution would further strengthen Australia’s three-pillar system.
The findings were supported by a nationwide poll which Finsia said proved Australia’s under-40s supported increasing the compulsory superannuation rate, and would welcome compulsory employee contributions of 3-5% on top.
Salter commented: “Such schemes must be considered by industry, government and consumer groups to address the demographic ‘time bomb’ which has been created by an ageing population.”
Under the proposed opt-out scheme, employees would contribute an extra 3% to superannuation on top of the existing 9% levy, unless they explicitly opted out.
This is based on international experience of a 25% engagement rate, and as per the target adopted by the New Zealand government for its KiwiSaver scheme.
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