Budget 2021: Billions to flow as superannuation savings boosted

The $3 trillion super industry has been a significant beneficiary of the budget, with billions more expected to flow into the sector.

After a tough 2020, the super sector can now look forward to a much smoother 2021 with the sector continuing its progress. Picture: istock

The $3 trillion super industry has been a significant beneficiary of the budget, with billions more expected to flow into the sector over the next few years as a result of Tuesday’s announcements.

By quietly allowing the superannuation guarantee to go up to 10 per cent in July as legislated, and by assumption up to 12 per cent by 2025, as well as introducing a range of smaller, targeted measures which will also boost the funds going into super, the government has underwritten an increased interest in super from the lowest-paid worker up to retirees in their seventies.

While the sector was hit by the $38bn early withdrawal scheme last year, which hit some funds harder than others, the budget backs super as an integral part of the savings of every Australian worker.

After months of debate over whether the government would move to undo the legislated increase in the super guarantee from the current 9.5 per cent to 10 per cent from July 1, Josh Frydenberg made no reference to the debate in his budget speech, with the increase already baked into the forward estimates and revenue assumptions.

After so much debate about possibly abandoning the proposed increase, allegedly to take the pressure off cash-strapped COVID-hit employers, the government has gone with the flow and allowed the increase with minimal fanfare.

According to a report by actuaries Rice Warner, it will see the super sector increase from around 140 per cent of the Australian economy today towards 180 per cent in the 2040s.

With the economy doing far better than expected, even since the October budget, and unemployment a lot lower than predicted last year, the government can make the argument that employers can cope with the 0.5 per cent increase.

The super industry, which saw contributions rise from $118.4bn in 2019 to $120.7bn in 2020 despite rising unemployment due to the pandemic, can quietly breathe a sign of relief that the issue did not even rate a mention in the budget speech or the budget documents.

Assuming total employer contributions of almost $98bn over the period at an SG rate of 9.5 per cent, a rise in the superannuation guarantee to 10 per cent could see an extra $5bn a year-plus flow into the sector.

One measure which has not been included in the budget has been the much called for extension of the superannuation guarantee payments to the federal government’s parental leave payments.

Such a measure would have involved a direct hit to the budget bottom line, while the other measures are more modest but still look like the government is handing out more concessions.

The other measures announced are all small but significant in encouraging a broad range of people to put more into their super or have their employers do it for them.

Abolishing the $450 a month wage threshold for the super guarantee application comes at a minimal cost to federal government revenue — only $31.3m over the four year budget forecast cycle. But it will bring in another 300,000 people — just over 60 per cent of them women — into the super system.

It will in effect ensure that compulsory superannuation is now universal for all Australian workers, arguing that even a small amount of money set aside in super is better than none, and as important to the low-paid worker as more money is to the rich.

Abolishing the work test for people from 67 to 74 to be able to contribute extra to their super above the superannuation guarantee is another small measure (estimated cost of $33.7m over the forward estimates), but one which will allow retirees and near retirees to continue to put money into super.

It will have the broader effect of engaging Australians with the accumulation side of their super until 74 whether they have retired, kept working or are just slowing down their paid work.

Lowering the age at which people can put up to $300,000 each into their super (or $600,000 for a couple) as a result of selling the family home from 65 to 60 is another modest measure which will not cost much in the short run but which will further boost interest in super as a savings vehicle for the over-sixties.

After a tough 2020, the super sector can now look forward to a much smoother 2021 with the sector continuing its progress.