AIST-Mercer Super Tracker Presenter: Dr David Knox, Mercer Chair: Karen Volpato, AIST
Introduction Why the AIST Mercer Super Tracker was developed Background System objectives Framework to road-test policies How AIST has been using the Tracker
The changing environment FSI objectives; fairness of tax concession; CIPRs Tax Reform the need for revenue ; age pension costs Gender causes; what makes a difference
AIST Mercer Super Tracker Adequacy is the total retirement benefit adequate? Sustainability will the retirement system continue to provide? Fairness is it fair within and between generations? Who? 10 measures of the Australian system (each scored out of 10)
Indicator Score Net retirement income 7.8 Fairness of total government support 5.0 Gender gap 6.6 Coverage of superannuation 8.1 Level of voluntary contributions 6.4 Total cost of government support 8.3 Current level of super assets 8.2 Labour force participation at older ages 6.2 Length of retirement 6.1 Age pensioner population 5.3
Changes from 2015 Retirement income now expressed as a % of ASFA Comfortable Non SG contributions now added (based on ATO data) Long term investment returns reduced Age pension indexation now based on wages Revised assets test taper commencing Jan 2017 No change: We consider a new entrant at age 20 with SG increasing
Total Retirement Income for 29 years expressed as a percentage of the ASFA Comfortable Standard Goal: 100% Weighting: 20% Score: 7.8 Net Retirement Income for median income earners Full-time males - 98.0% Full-time females - 91.8% Part-time males - 89.2% Part time females - 74.2%
Total Government Support Equity measure of Total Government Support $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 10 20 30 40 50 60 70 80 90 99 Income Percentile Value of SG contribution concessions PV of Invest Earnings Concessions net taxes Value of SS contribution concessions Value of age pension payments
Total Government Support Equity measure of Total Government Support $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 10 20 30 40 50 60 70 80 90 99 Value of age pension payments Value of SS contribution concessions Income Percentile Goal: level Weighting: 15% Score: 5.0 What s included? PV of Invest Earnings Concessions net taxes Value of SG contribution concessions
Gender Gap Average female balance in super as a % of average male balance ABS data 2013-14 - 65.2% Modelling - 65.9% Goal: 100% Weighting: 10% Score: 6.6
Coverage of super % of working age population who are covered in private pension plans Australia - 68.5% Netherlands - 88.0% Denmark - 83.3% Chile - 78.9% Goal: 80% Weighting: 2.5% Score: 8.1
Level of personal contributions Employer contributions to 30/9/15 (excluding salary sacrifice) Personal (voluntary) contributions 1.91% of GDP -$72.6 bill - $30.9 bill Goal: 3% of GDP Weighting: 2.5% Score: 6.4
Cost of total support by Government Super tax concessions plus age-related pensions 1.5% of GDP 3.0% of GDP 4.5% of GDP Goal: 2% of GDP; no more than 14% Weighting: 10% Score: 8.0
Cost of age pensions to Government in 2050 Projected cost of age-related pensions - 3.0% of GDP Average for OECD - 10.1% of GDP Australia is the second lowest of 32 countries Goal: 2% of GDP; no more than 12% Weighting: 5% Score: 9.0
Level of super fund assets Level of super fund assets 123% of GDP Goal: 150% of GDP Weighting: 10% Score: 8.2
Labour force participation rates Ages 55-59 74% Ages 60-64 57% Ages 65 and over 12% For ages 55-64, Australia is 64% (ILO) compared to 77% (Sweden); 74% (Switzerland); 70% (Japan) Goals: 85%; 65% 20% Weighting: 10% Score: 6.2
Length of retirement Life expectancy at pension age today 20.6 Life expectancy at birth minus pension age in 2035-40 18.9 Australian life expectancy in the top 10! Goals: 15 and 13 years Weighting: 10% Score: 6.1
Age pensioner population Full/ part pensioners today 50%/30% Full/ part pensioners in 2050 30%/50% Goal: 25% full Weighting: 5% Score: 5.3
. The results!! AIST Mercer Super Tracker 68.8 A good result but Areas for improvement Improve the fairness of total government support Increase labour force participation rates Close the gender gap
Fairness in 2015 pre budget
Total Government Support $700,000 Fairness in 2015 post budget Base Case vs New Assets Test $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 10 20 30 40 50 60 70 80 90 99 Income Decile Value of SG contribution concessions Value of investment earnings concessions Value of age pension payments Value of SG contribution concessions
Total Government Support Fairness in 2016 with the new assets test $3 per fortnight above threshold $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 10 20 30 40 50 60 70 80 90 99 Income Percentile Value of SG contribution concessions PV of Invest Earnings Concessions net taxes Value of SS contribution concessions Value of age pension payments
Fairness with taper of $3 per fn $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 10 20 30 40 50 60 70 80 90 99 Percentile
Fairness with different tapers $700,000 $600,000 $1.50: Score 7.6 $500,000 $400,000 $300,000 $200,000 $100,000 $3: Score 5.0 $0 10 20 30 40 50 60 70 80 90 99 Percentile
Types of policies tested Progressive taxes on concessional contributions Lifetime caps on concessional & non-concessional Taxes on investment earnings pre and post retirement Cap on tax free benefits Changes to fees or imputation credits Particular proposals
Top five options to improve Tracker score with impacts on retirement income and fairness Rank Description 1 ISA: 25% rebate on concessional conts with 7.5k max; $2 asset test taper and 15% tax on earnings pre and post retirement 2 15% tax on total benefits > $1 million 3 Concessional cap of 11k pa and non-concessional cap of 250k for lifetime (part of Grattan) 4 ALP: Extend Div 293 to 250k and tax post retirement earning > 75k 5 19.5% rebate on concessional conts; 7.5% tax on pre and post-ret; 15% tax on benefits > 500k
AIST s preferred package Description Concessional contributions taxed at marginal tax rates minus 20% No cap on concessional contributions for balances up to 500k; thereafter an annual cap of 35k (all in today s $$) A lifetime cap on non-concessional conts of 500k (indexed) Assets test taper reduced to $2 per fortnight
Impact of AIST s preferred package Tracker Indicator Old score New score Net Retirement Income 7.8 8.2 Fairness 5.0 5.9 Gender Gap 6.6 6.6 Overall score 68.8 71.0