Grattan Institute report claims super hikes hurt workers through lower wages

It’s touted as a “free lunch” and a path to a pay rise – but there’s a big reason why this policy is actually hurting Australian employees.

Most people believe the more money that goes into superannuation the better – but it turns out the opposite could actually be true.

That’s according to independent think-tank the Grattan Institute, which has claimed higher superannuation means lower wages in a new research paper.

According to the report, administrative data on 80,000 federal workplace agreements made between 1991 and 2018 has revealed around 80 per cent of the cost of increases in super is passed on to workers through lower wage rises within the life of an enterprise agreement, which typically lasts from two to three years.

The findings are especially relevant at the moment, as Australian employers’ superannuation contributions are set to increase from the current level of 9.5 per cent of wages to 12 per cent by July 2025.

But Grattan’s Household Finances Program director Brendan Coates told news.com.au the longer-term impact was significant – and that it was an especially bad time to raise super contributions given Australia’s stagnating wages.

“What it simply means is that when compulsory superannuation goes up, wages grow more slowly than they would otherwise,” he said.

“A lot of people would probably think superannuation is a free lunch, but just because employers hand over the cheque, it doesn’t mean you don’t pay in the long term – workers pay for almost all increases in superannuation through lower wages.

The Grattan Institute has found workers end up paying for superannuation increases. Picture: iStock

“We’re in a world where wages are not growing very strongly and employers clearly don’t feel the need to give pay rises … and the implication is we shouldn’t be raising compulsory superannuation at a time when wage growth is so slow.”

Mr Coates said, ultimately, super came at a cost.

“To be clear, superannuation is generally a good thing – it’s just a question of how high it goes up because there is a cost to people, as it makes their pay grow more slowly,” he said.

“We particularly don’t want (increases) at a time when wage growth is so slow.

“There’s good reason to be worried – wages are stagnant, as super is not the path to a pay rise.”

He called for the planned increase to be abandoned.

“This trade-off between more superannuation in retirement but lower living standards while working isn’t worth it for most Australians,” he said.

The Grattan report measured the super-wages trade-off for nearly a third of Australian workers employed under federal enterprise agreements.

But it found other workers were also likely to bear the cost of higher compulsory super in the form of lower wages growth, and despite the claims of some within the superannuation industry, it was unlikely that future super increases would be different from past increases.

It argued that if employers were not willing to offer large pay rises today, it was hard to imagine why they would pay for higher super – and if workers’ bargaining power had fallen, employers were even less likely to pay for higher compulsory super than in the past.