Superannuation rise will combine with tax cuts to make us richer

A compulsory superannuation increase from July 1 delivers much larger benefits that its initial dollar amounts suggest. Here’s why.

A jump in compulsory employer superannuation payments will put a cherry on top of tax cuts for every worker from next Monday.

Almost 9.3 million workers will get an automatic super boost from July 1 averaging $340 a year, a new analysis by Super Members Council has found.

It’s not as large as the annual $1369 stage three tax cut coming for workers on the median Australian income of $67,600, but its potential to compound over decades can deliver an even bigger benefit.

The SMC analysis found July’s 0.5 per cent rise in Superannuation Guarantee contributions, from 11 to 11.5 per cent, would deliver a 30-year-old a projected $17,570 more at retirement, and when followed by next year’s legislated SG rise to 12 per cent it could add $34,000 to a nest egg.

“The miracle of how super works for all Australians is that even small amounts put aside today inside your super grow and grow and grow across the decades of your working life,” SMC CEO Misha Schubert said.

Super Members Council CEO Misha Schubert says under-40s are big winners from the change. Picture: Supplied

Younger Australians would benefit the most and they had more years before retirement for their super to grow, she said.

“More than half of those receiving the increase are under 40, and more people in their 30s will get the boost to their retirement savings than any other age bracket.”

SMC analysed de-identified data from the Australian Taxation Office and Australian Bureau of Statistics to find Western Australians would get the biggest super boost of $367, closely followed by New South Wales ($357) and the ACT ($347).

“The Superannuation Guarantee is a percentage of your wage … when you have higher wages, and in the WA economy you have higher wages linked to the mining sector, FIFO workforce and other structural reasons, it means that those numbers are higher,” Ms Schubert said.

JBS Financial Strategists CEO Jenny Brown said the SG rise added half a per cent to employers’ payrolls but was “really good” news for workers.

“It all adds up,” she said.

“So many people don’t think about putting extra money into their super.

“We highly recommend making extra contributions, but it’s no necessarily on everyone’s radar to do that.”

Ms Brown said people could consider using some of their stage three tax cut money to make extra salary sacrifice contributions into their super, delivering themselves extra tax breaks.

Just $20 a week of salary sacrifice could deliver a significant benefit in retirement, she said.

SMC says before the compulsory Superannuation Guarantee was introduced in 1993, only 10 per cent of retirees listed super as an income. Today, three-quarters of Australians aged between 60 and 65 have super, it says.

“Despite a doubling of over-65s by 2063 and a trebling of those aged over 85, the Intergenerational Report shows the age pension will decline from 2.3 per cent of GDP to 2 per cent by 2062-63,” it says.

Ms Schubert said compulsory super took pressure of the age pension system, “defying the trend of every other ageing economy in the world”.

“Super is significantly enhancing the quality of life that Australians can have in retirement,” she said.

JBS Financial Strategists CEO Jenny Brown says super is often ignored. Picture: Supplied

What you’ll get

Your extra annual super from July 1, based on your wage:

$50,000: $250

$75,000: $375

$100,000: $500

$125,000: $625

$150,000: $750

$175,000: $875

$200,000: $1000

Source: Super Members Council

Originally published as Superannuation rise will combine with tax cuts to make us richer