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The cost of the age pension to taxpayers will fall even as more than 9 million people reach retirement age over the next 40 years, Treasurer Jim Chalmers will reveal on Wednesday amid accusations that the next election will be an existential fight for the future of superannuation.
As the Liberal Party signalled it was looking at allowing young people to access their super to get out of the rental market, Chalmers will argue Australia is defying a global trend in age pension cost blowouts because of the superannuation system.
One Nation this week revealed that if it formed government, renters and people with a mortgage could take a quarter of their 12 per cent super guarantee as income for up to three years in a move it said would deliver $44 a week to someone on the median wage.
It has since struggled to explain how the policy would work, denied it would add to inflation while reducing retirement incomes, and prompted One Nation’s treasury spokesman Barnaby Joyce to declare he was “not Jesus Christ” when pressed by ABC’s 7.30 to outline key elements of his party’s plan.
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Chalmers, in a speech to the Super Members Council on Wednesday, will reveal findings of the upcoming intergenerational report that is due to be delivered on September 21. The report, instigated by Peter Costello in 2002, outlines key pressures on the budget over the coming four decades.
According to Chalmers, the latest intergenerational report will show that by 2066, there will be about 9 million people over the age pension age of 67.
But the number of people on the pension is expected to fall from 66 per cent last year to 52 per cent.
Budget spending on the pension is expected to fall from 2.3 per cent of GDP last year to 1.8 per cent by the mid-2060s. By contrast, pension spending is expected to reach 10 per cent by 2060 in the UK, 8 per cent in Canada, 7 per cent in New Zealand and 6 per cent in the US.
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“That is phenomenal in an ageing society, and it’s essential,” Chalmers will say.
“Super takes serious pressure off social security outlays and makes the budget much more sustainable as a consequence.
“Having super at the core of the best retirement incomes system in the world means pension spending as a share of the economy will be the lowest in the OECD, but even as those costs moderate, retirees will have more economic security, not less.”
Chalmers will reveal that the median retirement age super balance will approach $450,000 by the mid-2030s. That would be more than double the current estimated $200,000 and well up on the $115,000 of 2015.
In Costello’s first intergenerational report, the age pension was forecast to climb to 4.6 per cent of GDP by 2046-47 and continue to increase. At the time, the superannuation guarantee levy was legislated to rise to 9 per cent.
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The guarantee reached 12 per cent last financial year.
In Chalmers’ 2023 intergenerational report, Treasury expected the age pension to cost 2 per cent of GDP by the early 2060s.
On Tuesday, the Australian Financial Review revealed that the Liberal Party under Sussan Ley costed a policy almost identical to that unveiled by Hanson.
Under the Liberal proposal, while a worker could withdraw three percentage points of their super, there was no time limit. And rather than coming through a person’s super fund as proposed by One Nation, payments would come directly from a person’s employer.
The extra pay would be taxed at a person’s marginal rate. This would deliver an extra $1 billion in personal income tax to the government every year as superannuation is taxed at a concessional rate.
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Opposition housing spokesman Andrew Bragg said the Coalition was concerned that more people would enter retirement as renters.
“If we are going to become almost a majority nation of retired renters, then we need to look very carefully at how these things are calibrated,” he said.
But Chalmers will argue both the Coalition and One Nation were intent on dismantling superannuation in a move that would hurt the budget and the retirement incomes of older Australians.
“We’re witnessing now the biggest threat to compulsory super, with preservation at its core, in the four decades since it began.
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“The next election will be super’s existential moment. It will help determine whether we make the most of our intergenerational advantages or trash them.”
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Shane Wright is a senior economics correspondent for The Sydney Morning Herald and The Age.Connect via X or email.AdvertisementAdvertisement