How job losses push more money into super

Widespread job losses among low-income workers is a key factor set to trigger an unlikely lift in the amount Australians are ­allowed to contribute to super each year.

Widespread job losses among low-income workers is a key factor set to trigger an unlikely lift in the amount Australians are ­allowed to contribute to super each year.

In what is shaping up as a vexed issue for the Morrison government, it now looks like money may start flowing back into the retirement system faster than ­expected with a forthcoming ­increase in the so-called contribution limits.

The expected change to contribution caps would also come as the debate intensifies over whether the superannuation guarantee charge should move higher than 9.5 per cent — it is currently legislated to go to 10 per cent in 2021 and 12 per cent in 2025.

Since 2017, the amount a person can contribute to super on a pre-tax concessional basis is fixed at $25,000 a year — the amount that can be put in on a post-tax (non-concessional) basis is $100,000. However, in a quirk of the system, the indexing (or changing of the limits linked to inflation) is not based on the generally used consumer price index: Rather the contribution limits are based on wage inflation and the numbers in this area have moved to a point that experts believe will trigger an increase in the contribution caps later this financial year.

Industry analysts now expect the pre-tax contribution limit will increase from $25,000 to $27,500 a year and the post-tax limit from $100,000 to $110,000 from July 1 next year. After higher than expected withdrawals from the early super release program — where the program spurred withdrawals of more than $30bn from the system — it will also be the first time the contribution limit has lifted since the Coalition’s extensive overhaul of the system three years ago.

Peter Burgess, policy director of the Self Managed Super Fund Association, says he expects the indexed increments to come though much sooner than predicted: “It looks like the caps will have to move based on the latest figures — we do expect an ­increase in July.”

The change is likely because of the unusual movement of the ­average weekly ordinary time earnings (AWOTE) numbers on which superannuation contributions are based.

As Tim Miller, education manager at SuperGuardian, explains: “There have been two very big changes as many lower income jobs were lost, the average weekly wage lifted and then JobKeeper is regarded as a wage, which also bolstered the figures.”

The higher AWOTE trend is likely to continue in the months ahead as unemployment remains high (nearly 7 per cent) and the JobKeeper package rolls on until next March. In turn, that means the indexation must kick in ­according to the rules regulating super: “It’s all there in the legislation,” Miller says.

Meanwhile, the wider super industry is waiting for the government to release its Retirement Income Review to offer an overarching take on superannuation policy: The review is expected to lay the groundwork for any further reforms in the superannuation system.

In the wake of the giant market sell-off back in March, super funds have clawed back nearly all of the losses from the early phase of the crisis, posting a positive return in the September quarter and adding a further 2.5 per cent in the first half of October, ­according to Chant West.