For nearly 30 years, Australian governments have working to get the percentage of your wage that employers must contribute to your retirement savings to 12 per cent — but with the Government gearing up for the final stretch of increases, the plan is at risk of coming off the rails.
The superannuation guarantee is the minimum amount of your earnings that your boss, or you if you’re self-employed, has to set aside for when you retire.
It means workers have forced savings to help them pay for those later years when they do not have an income, and it takes pressure off the age pension, which the Government pays to help retirees who don’t have other savings to fall back on.
The age pension and other income support schemes for seniors are forecast to cost the federal budget more than $50 billion this financial year. They are the most expensive welfare measures on the federal books. And an increasing life expectancy means the cost is likely to grow quickly over the coming decade.
At the moment the superannuation guarantee is 9.5 per cent of a person’s wage. But it’s legislated to rise to 10 per cent next July, with follow-up staggered increases to 12 per cent by 2025.
Here’s what that looks like:
|Period||General super guarantee (per cent)|
|July 1, 2002 – June 30, 2013||9|
|July 1, 2013 – June 30, 2014||9.25|
|July 1, 2014 – June 30, 2021||9.5|
|July 1, 2021 – June 30, 2022||10|
|July 1, 2022 – June 30, 2023||10.5|
|July 1, 2023 – June 30, 2024||11|
|July 1, 2024 – June 30, 2025||11.5|
|July 1, 2025 – June 30, 2026||12|
Scott Morrison has committed to this plan
Paul Keating’s government made the superannuation guarantee a law back in 1992. At the time, it was just 3 per cent of income, with baked-in increases that would take it to 12 per cent by 2001.
When the Coalition came to power, the Howard government intervened and froze the rate until Labor returned to government and passed a 2011 law to increase it to 12 per cent by last financial year.
But with another change of government, so too came a freeze on increases, this time in 2014 under Tony Abbott’s prime ministership.
The Coalition pushed out the time frame to achieve the 12 per cent share to 2025, which Prime Minister Scott Morrison took to last year’s federal election
Why are some people opposed to increasing the super guarantee?
Within the Coalition there has long been a group of vocal opponents of further increases to superannuation.
There are also some government politicians who have had little faith in the entire superannuation system, which they argue is unfairly stripping wage earners of immediate access to their own money.
This group argues it should be up to individuals to decide whether they will put money aside for retirement and to choose how much they want to save.
Boosting their campaign is the coronavirus-induced recession that Australia has plunged into this year, with some politicians arguing now is not the time for companies to have to contribute more money to an employee’s superannuation.
Even before the pandemic forced more than 1 million Australians into unemployment, public policy think tank The Grattan Institute released a paper in February that found workers effectively paid for increasing the super guarantee with lower wages.
It argued the rise to 12 per cent should be abandoned.
Could retirement incomes be ‘smashed’ further?
Labor maintains if Mr Morrison changes his Government’s position now, it will break an election commitment he took to voters last year.
Shadow Treasurer Jim Chalmers said a further freeze on contribution increases would “smash retirement incomes”.
When the coronavirus pandemic hit, the Federal Government opened up the option for cash-strapped Australians to take money out of their superannuation accounts.
More than $33 billion has already been withdrawn, and it’s estimated about half a million Australians have cleaned out their entire superannuation account in the process.
“Now more than ever, Australians need the legislated increase in the super guarantee to rebuild their retirement balances,” Mr Chalmers said.
The architect of the compulsory super scheme, Mr Keating, recently put it a little more bluntly, saying people were “ratting on their own savings”.
The peak industry body Association of Superannuation Funds of Australia (ASFA) says many of the people who have drained their super accounts completely are under the age of 35.
ASFA argues moving to a higher superannuation guarantee is “critical” to helping many young people facing long-term unemployment.
The association, which represents players in the $3 trillion superannuation industry, maintains the higher contributions will help ensure people aren’t left to rely solely on the age pension when they retire.
How likely is a change?
There has been no clear answer from the Prime Minister about whether the super guarantee increases are going ahead as planned, but his most recent comments suggest changes are being entertained and the legislated rise is not a certainty.
Last week Reserve Bank Governor Philip Lowe told a parliamentary inquiry boosting the super guarantee to 12 per cent could hit wages, spending and employment.
“If this increase goes ahead, I would expect wage growth to be even lower than it otherwise would be,” Dr Lowe said.
“There will be less current income, and if there is less income there may be less spending, and if there is less spending there may be less jobs.”
Mr Morrison later told reporters he was “very aware of those issues”.
He noted that since the May 2019 federal election, the economic climate had changed.
“There’s been a rather significant event since then,” Mr Morrison said.
“But nevertheless, they are matters we are aware of, and they have to be considered in the balance of all the other things the Government is doing in this space.”
Assistant Minister for Superannuation Jane Hume has also made clear next year’s increase from 9.5 to 10 per cent is up in the air now because of the “trade-off” between long-term savings and immediate economic harm.
The Government last year commissioned a review of retirement income which is expected to be used to justify the position the Coalition takes.
That 650-page document has been handed to the Treasurer but remains under wraps.