The conventional wisdom that Australians do not save enough for retirement is wrong, with the typical retiree having a higher standard of living than they did when they were working, the Grattan Institute says.

The Melbourne-based thinktank has released a new report calling for Australia’s generous superannuation tax breaks and age-based tax breaks to be pared back by billions of dollars annually.

It says a large portion of Australians has been unnecessarily convinced by the superannuation lobby’s “fear factory” that they won’t have enough savings for retirement, and it is leading to poor policy outcomes.

The report claims Australia’s retirees are less likely than working-age Australians to suffer financial stress, are more likely to be able to afford annual holidays, and that most own their own homes and many are net savers.

“Current retirees often leave a legacy almost as large as their nest egg on the day they retired,” the report says.

The report, Money in Retirement: More Than Enough, explains the retirees of tomorrow are likely to be even better off due to a combination of compulsory super contributions, non-super savings and the age pension, with many low-income Australians getting a pay rise when they retire.

Its modelling shows that, after allowing for inflation, most workers today will receive a retirement income of at least 91% of their pre-retirement income – well above the 70% benchmark endorsed by the Organisation for Economic Cooperation and Development.

The Grattan Institute says these facts reveal current policies – such as the plan to lift the compulsory superannuation rate across the board from 9.5% to 12% by July 2025 – are unnecessary and excessive, and it will make the retirement income system unsustainable.

It has called for a suite of tax lurks to be pared back, including reducing super tax breaks to save the budget over $4bn a year, and reducing age-based tax breaks to save another $1bn.

However, it says the retirement income system is working poorly for senior Australians on low-incomes who do not own their home and who have to rent in the private market.

It says those Australians are more likely to fall into financial hardship, including poverty, and the problem will get worse in the future because home ownership is declining among young Australians.

Therefore, it says the real policy priority should be boosting the maximum rate of commonwealth rent assistance by 40% – an extra $1,410 a year for retired singles and $1,330 for couples – with commonwealth rent assistance being benchmarked to rents paid by the poorest 40% of renters, rather than to the consumer price index.

“Our findings contradict the claims of many in the superannuation industry that Australians are not saving enough for their retirement,” the report says.

The report contains eight recommendations, including:

Abandon the plan to increase the rate of compulsory superannuation contributions from 9.5% to 12% by July 2025

Increase the maximum rate of commonwealth rent assistance by 40%

Reduce the age pension assets test taper rate from $3 to $2.25 each fortnight for every $1,000 in assets above the “asset free” area

Reform super tax breaks further, including limiting annual super contributions from pre-tax income to $11,000 a year, limiting lifetime contributions from post-tax income to $250,000, and taxing earnings in retirement (balances below $1.6m are currently untaxed) at 15%

Reform age-based tax breaks, including winding back the seniors and pensioners tax offset so it is only available to pensioners, and so those that do not qualify for the age pension pay some income tax

Change the age pension assets test to include the value of a home above some threshold – such as $500,000

The report also says the government should ask the Productivity Commission to investigate the economic and social costs of raising the age of access to the age pension and super to 70 years alongside a new regime for easier access to the pension for people aged over 60 years with impaired health.