The federal government’s planned increase to compulsory superannuation contributions could result in an average worker having $85,000 more at retirement, says the Association of Superannuation Funds of Australia (ASFA).
From 1 July, super payments will rise from 9.5 to 10 per cent and will lift to 12 per cent by 1 July 2025.
An average 30-year-old worker will retire with almost 19 per cent more super than he/she would have under the existing 9.5 per cent super guarantee (SG), meaning more will enjoy a ‘comfortable’ retirement by ASFA standards.
Read more: How financially comfortable are Australia’s retirees?
“Currently, only 25 per cent of Australians achieve a self-funded retirement,” said ASFA’s deputy chief executive Glen McCrea.
“By 2050, that number is set to double.
“It’s a significant shift which will underpin Australia’s fiscal sustainability by diminishing the reliance on the Age Pension.
“The key objective of super is to provide dignity in retirement.”
An ASFA report released on 23 June says the increases set to kick in from 1 July will “super-size” retirement balances.
Read more: Superannuation co-contributions explained
The 0.5 per cent rise represents an extra $19,000 for average workers’ nest eggs at retirement.
By 2025, an average 30-year-old worker today can expect to have about $534,000 in savings at retirement.
The nation’s pool of retirement savings is also expected to grow to $5 trillion by the early 2030s.
The Grattan Institute maintains the increase comes at the expense of wages.
The Henry Tax Review also states that lifting the SG will reduce take-home wages, so too, the Retirement Income Review from the Australian Treasury, and analysis from the Reserve Bank.
And it may not necessarily be because employers will balk at increasing wages. If an employee’s contract says their super is included in their total package, it could be legal to fund the SG increase from base wages, say some employment lawyers.
“There have been instances of this in the past, but I fear it’s becoming more prevalent for the simple reason that more and more employees are on the kind of contracts that allow it to happen,” said Australia Institute chief economist Richard Denniss.
“But let’s be clear, if thousands of employers do this, that’s exactly why we don’t get wage growth in Australia.”
For most employers, the cost of delivering the 0.5 per cent increase would be less than $5 a week. Unions are up in arms about employers who choose to take it out of take-home payments.
“It is absolutely shocking to me that employers would be trying at this point to try and avoid paying that small increase in superannuation,” says ACTU president Michele O’Neil.
While the planned increase will help Australians over 50, they won’t be of much assistance to retirees.
Read more: Federal Budget 2021-22: What’s in it for older Australians?
That assistance came in the Federal Budget, in the form of the removal of the $450 per month minimum income threshold for the SG; extending access to downsizer contributions; improvements to the Pension Loans Scheme and changes to how retirees can access retirement income products.
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