Like most people his age, 19-year-old Zac Webster doesn’t pay a great deal of attention to his super.
- The superannuation employers must pay workers is legislated to rise from next year until it hits 12 per cent by 2025
- A debate is brewing about whether the rise will mean employers refrain from increasing wages
- There are calls for the Government to reduce more than $30 billion of fees paid to super funds each year and overhaul the system
But the university student and part-time McDonald’s worker wants the Federal Government to tackle the high fees workers like him get charged each year by their super funds.
Workers currently pay superannuation funds more than $30 billion in fees each year — and that’s excluding insurance premiums.
The amount of fees rolling into these funds is set to rise as the rate of compulsory super lifts.
The super guarantee — the proportion of wages that employers must contribute to their workers’ retirement savings — is legislated to increase half a per cent a year before reaching a final value of 12 per cent by 2025.
Modelling by Super Consumers Australia provided to ABC News suggests funds will earn an extra $427 million in total over the period the superannuation guarantee rises to 12 per cent.
The modelling is in sync with Grattan Institute figures that also show total fees pumped into super funds would rise by $500 million by 2025.
A recent review into superannuation by the Productivity Commission suggested having funds reduce fees would be one of the best ways to boost Australians’ retirement incomes.
“We need action to plug the leaks in the superannuation bucket before we consider tipping more money in,” Super Consumers Australia director Xavier O’Halloran says.
What if you could dip into your super for a house deposit?
But Mr Webster says the legislated rise shouldn’t be delayed because Australia is in a recession.
He doesn’t think employers will hike wages any time soon, so he wants the super rise to go ahead as planned.
Mr Webster also wants the Government to make it easier for young people like him to draw on their super funds.
He says he would prefer to use some of his super savings now for a house deposit.
At this stage, it’s fiercely debated whether employers will hold back giving pay rises because of the super rises, or whether workers may still miss out on pay rises even if compulsory super remains stuck at 9.5 per cent.
As that debate rages, the political divide on super intensifies.
Prime Minister Scott Morrison says the Government’s priority is to lift the nation out of the coronavirus pandemic recession, and a number of Liberal MPs have warned raising the cost of hiring workers could delay wage rises. They want the super increase scrapped.
They sit on one side of the debate, along with Reserve Bank governor Philip Lowe and researchers at the Grattan Institute think tank, who have raised concerns increasing the superannuation rate could stagnate wage growth and hurt Australia’s economic recovery.
On the other side of the debate are Labor, trade unions and the super industry.
They argue Australians’ retirement savings have been battered during the COVID-19 crisis and a delay in increasing super could not only leave workers with less money but see more Australians facing poverty in retirement.
Former Labor prime minister Paul Keating, the architect of compulsory super, argues the Liberals have a calculated strategy to destroy the system.
Is a super rise a ‘trade-off’ for higher wages?
The unions and super funds have already warned they will launch a massive public campaign against any attempt to roll back super.
To avoid such heat, the Federal Government may need to deliver a compromise.
Sources say it’s possible the Government could still go ahead with the legislated superannuation rise next year, but with the caveat that those Australians who want to dip into their retirement savings have the option to.
There has been a huge take-up of the Federal Government’s scheme to allow eligible Australians to withdraw up to $20,000 of their super during the COVID-19 crisis.
Figures from the Australian Prudential Regulation Authority (APRA) show about 3 million Australians have so far withdrawn around $34 billion.
Assistant Minister for Superannuation Jane Hume says the bulk of calls and letters to her office are from Australians asking the Government to introduce a third tranche of the superannuation early-release scheme.
“You can see just how popular this program has been for so many people who have … revealed their preference to have some of their savings taken today, in times of uncertainty, rather than locked up for the future,” Senator Hume tells ABC News.
Asked what kind of economic conditions the Federal Government would want to see in order to proceed with the legislated rise in compulsory super, Senator Hume responds: “It’s very hard to say what the right circumstances would be.”
But she says the Government is conscious now may not be the best time to raise the cost of employment.
“And we know that taking money out of people’s pockets today potentially to put away for 40 years [in the future] might not necessarily be the right solution for the times.”
Increased super, fewer jobs?
Economist and UNSW professor Gigi Foster also wants the super rise to be abandoned.
She is among 29 of the 44 economists surveyed by the Economic Society of Australia who say the hikes in compulsory super contributions should be deferred or abandoned.
An even larger majority, including some economists who want the increases to proceed, believe if the legislated rise proceeds, it will hurt wage growth.
She questions why the Government would raise the cost of employment during the biggest recession Australia has faced since World War II.
“If employers spend more to hire any given worker, then just like when prices go up in the supermarket [and] we would want to buy fewer of those items, the employers would be expected to want to hire fewer of those workers,” she says.
Professor Foster says if some segments of the population do not have enough savings for retirement, then the age pension will kick in.
“This applies to low-income people and also applies to women who don’t [retire with] enough super,” she says.
“We should not be simply putting a blanket rule … compelling employers to put more into superannuation and therefore raise the cost of employing each individual worker.”
Call to tackle super tax breaks
Grattan Institute researcher Brendan Coates is another player who wants to see the super rise abandoned.
He was making this call even before the COVID-19 crisis. He says raising super in the midst of a deep recession would only slow the pace of economic recovery.
“Firms have to simply choose between putting more money into the pockets of their workers or more money into their superannuation funds,” Mr Coates says.
He says data on 80,000 federal workplace agreements made between 1991 and 2018 shows about 80 per cent of the cost of increases in super is passed to workers through low wage rises within the life of an agreement.
“This is typically within two to three years,” he says.
The increase would cost the federal budget more in extra super tax breaks than it saves in lower Age Pension spending for decades to come.
“It’s a $2 billion-a-year hit to the budget once super hits 12 per cent, and those extra super tax breaks skew heavily to the wealthiest 20 per cent of Australian workers,” Mr Coates says.
Grattan’s research shows that at 9.5 per cent, the vast bulk of retired Australians will have an adequate income and retire comfortably.
Mr Coates says while some low-income Australians, especially those who rent, remain at risk of poverty in retirement, boosting Commonwealth Rent Assistance is the best way to help them.
Will workers get any pay rise if super doesn’t increase?
But president of the Australian Council of Trade Unions (ACTU), Michele O’Neil, points out over the past six years there’s been no increase in the super guarantee and wages have been stagnant.
“What will happen if the superannuation increases don’t go up is that workers will both not have wage increases and not have superannuation increases.”
She says the amount of money employers need to contribute to workers’ super is relatively small, but it has a massive impact on people’s retirement balances.
“For a retail worker that’s $4.16 a week — the price of a cup of coffee — but what it means in their retirement savings, when those increases over the next couple of years come through, is more than $60,000 when they retire,” she argues.
The Association of Superannuation Funds of Australia’s (ASFA) chief executive Martin Fahy also believes the only way workers will end up with more money is if the scheduled increase in the superannuation guarantee goes ahead.
“We saw in the June-quarter national accounts that corporate profits jumped 15 per cent while wages slipped 2.5 per cent,” Dr Fahy says.
Industry Super Australia (ISA) chief executive Bernie Dean says delaying or stopping increases will mean there’s less for super funds to spend on nation-building infrastructure projects that could help revive the economy.
ISA’s research has found it could halt about $33 billion going into the economy by 2025 — capital expenditure that could create as many as 660,000 jobs.
“It stands to logic that if you have less superannuation money going into the system, industry super funds, who are already playing a significant role in the economy, will have less money to invest in things that generate jobs and economic activity,” Mr Dean says.
More importantly, he says, ditching the rise leaves people with less money in retirement.
ISA estimates it could short-change the average 30-year-old couple about $150,000 to $200,000 at retirement.
Mr Dean also points out 600,000 Australians have already exhausted their retirement savings through the Government’s early-release scheme, the vast majority of them under 35 years old.
Super revamp to follow release of retirement review
Treasurer Josh Frydenberg will soon hand down the Government’s response to a comprehensive retirement review that looked at the issue of the superannuation guarantee, as well as tax incentives for super and the reliance on the age pension.
Senator Andrew Bragg is among a number of Liberal backbenchers pushing the Government to abandon the super increase.
He says the super industry unfairly described him as similar to an “anti-vaxxer” because of his opposition to raising compulsory super.
He recently released a book calling for a major overhaul of super funds, including moves that would drastically cut fees and allow people to put their savings towards their own homes.
The timing of the compulsory super increase is ultimately a decision that lies with Parliament — and the Government is facing fire from Labor politicians.
The same day Mr Keating went on the attack, another former prime minister, Kevin Rudd, described suggestions the compulsory super increase would come at the expense of wages as “the biggest bullshit argument I have ever heard”.
Shadow treasurer Jim Chalmers also argues “the Government is using this crisis to thieve people’s super”.
But Senator Bragg says the real thieves are those who have been, and will continue to, profit from the system.
“The only people that have really had a say about super have been the rent-seekers, the vested interests — the banks, the financial institutions and the unions,” Senator Bragg argues.
“And guess what? They’ve all got their hands in your pocket.”