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AIST has warned that Australians are likely to be financially worse off over their lifetime under a proposal being considered by the Morrison Government to give workers a choice of a super rise or a pay rise.
The proposal – reported in the media this week to be part of a range of reforms being examined by the Government – would see the Government renege on the legislated timetable to increase the compulsory super rate from 9.5% to 12% by 2025.
While the proposal is not before cabinet it is believed to have been prompted by Liberal backbenchers with strong support from a number of Coalition MPs. It would allow workers to choose whether to take additional payments over the 9.5 per cent guarantee as extra income rather than a superannuation contribution.
AIST was quick to condemn the proposal yesterday in commentary that was widely covered by the media (including the Age/SMH, News Ltd and Australian Financial Review) along with harsh criticism from Labor, Paul Keating and Kevin Rudd, the ACTU and ISA.
AIST CEO Eva Scheerlinck said the Morrison Government seemed intent on undermining financial outcomes for Australians in retirement. Australia’s compulsory super system – which was recognised as one of the world’s best retirement income systems – ranks number four in the recent Mercer CFA Institute Global Pension Index.
“Consumer research has repeatedly shown that Australians strongly support our compulsory super system rather than one which is opt-in. There is a broad understanding that unless we are compelled to save a portion of our wages, very few of us will have enough money for a financially secure retirement,” Ms Scheerlinck said.
Ms Scheerlinck said lifting the super rate from 9.5 to 12% amounted to workers on a typical median wage of $57,200 putting an extra $27.50 per week into super. But this would happen gradually over a four year period to 2025, with each 0.5% rise worth $5.50 a week. Many workers taking this as pay would have this amount eroded by additional income tax as well as losing out on the benefits of compounding interest on their savings in super.
“Over the course of working life, an extra 2.5% of super savings could boost the average couple’s retirement nest egg by $200,000,” she added.
“There are lots of ways to deal with low wage growth but forcing people to use their retirement savings to fund their own pay rise shouldn’t be one of them,” Ms Scheerlinck said.
Noting that the Government’s COVID early release scheme had led many low income earners to deplete their super savings, Ms Scheerlinck said for these Australians – as well as others who had insecure work and broken work patterns - the rise to 12% could be the difference between a financial secure retirement or one just scraping by.
The ATO has issued an addendum that amends Superannuation Guarantee Determination SGD 2006/2 to update references to income tax legislation and to reflect amendments made to superannuation guarantee legislation by the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Act 2019.
The current status of superannuation Bills currently before Parliament can be found here.