Super increase: Pros and cons of increasing to 12 per cent according to finance experts

Australia’s superannuation policy is one of the most debated systems of all time. But should contributions rise to 12 per cent? News Corp finance experts Sophie Elworth and Anthony Keane consider the pros and cons.

Australia’s superannuation policy is one of the most debated systems of all time.

But should mandatory contributions rise to 12 per cent? Two of our finance experts consider the for and against arguments.

AGAINST:

Finally, aspiring first-home buyers who are lucky enough to be in a stable job right now have been given a much better chance of cracking into the property market.

The First Home Loan Deposit Scheme, government grants, record-low interest rates, falling house prices and a drop off in buyers has helped fuel this.

While home ownership is a goal for most Australians, for many younger people having their income in their own pockets rather than in a super account they cannot touch 30 or 40 years down the track is far more useful.

In simple terms a bird in the hand is worth two in the bush, as the tussle continues over weather compulsory super should rise to 12 per cent.

Figures from the Centre for Independent Studies showed that in 1991, 56 per cent of Australians aged 25 to 34 owned their home either outright or with a mortgage.

This compares to just 45 per cent in 2016.

Automatically, taking 9.5 per cent of a person’s salary and putting it into super only prolongs one’s ability to buy their first home.

The super guarantee rate should be paused for now during this economic crisis.

The case for having a solid superannuation balance has never been stronger. Picture: iStock

FOR:

People who say compulsory superannuation shouldn’t be lifted to 12 per cent forget one key point. If left to save for their retirement voluntarily, most Australians will leave it in the too-hard basket until it’s too late.

Nothing grows wealth better than compound interest created by automatic savings, and superannuation delivers both.

The nation’s super nest egg is approaching $3 trillion – a huge pile of money that belongs to the people, not super funds or the government, and will deliver a richer retirement than would otherwise be achieved.

The compulsory Superannuation Guarantee (SG) system started in 1992 at 3 per cent, back when total super assets were around $150 billion. It rose to 9 per cent by 2002, then was supposed to climb again to 12 per cent between 2012 and 2019 but was frozen six years ago by the Coalition government at 9.5 per cent.

Some Coalition MPs and analysts now say the planned rise to 12 per cent by 2025 should not go ahead because it will lead to lower wages.

However, wage growth has been anaemic anyway in the past decade as the SG barely moved, and was much stronger in the 1990s – a decade in which the compulsory super rate trebled.

There’s a fair argument to delay next July’s planned SG rise to 10 per cent until COVID-19 clears up, but it should only be a temporary pause on the path to 12 per cent and a wealthier future for workers.