Higher super levy not only path to secure retirement

Out of necessity or choice, many Australians are working later into their lives. The Household, Income and Labour Dynamics in Australia survey released this week shows a decline in retirement in every age category, apart from those over 75. It makes sense. Australians are living longer; experience in the workplace counts; and most young jobseekers, who have been hit hard by the economic fallout from COVID-19, are not aspiring to the positions held by older workers. The trend also has an important bearing on retirement incomes policy, including the Age Pension and superannuation. Working for longer, if practical, sets up a more prosperous retirement through a larger superannuation nest egg. It also relieves pressure on the welfare budget for taxpayers as take-up of the Age Pension is delayed.

Treasury’s Retirement Income Review, released on Friday, advised that average workers would lose wages to subsidise the retirement funds of the well-off if the super guarantee was lifted from the current 9.5 per cent: “The … evidence suggests the majority of increases in the super guarantee come at the expense of growth in take-home wages.” That is correct. From the outset, compulsory super contributions were seen as employees’ income, paid by employers in lieu of take-home pay rises. Maintaining the guarantee at its current level would allow for higher living standards in working life, the review noted.

Opposition Treasury spokesman Jim Chalmers disagrees. Dr Chalmers insists that freezing super contributions will not “deliver the kind of wages growth that Australian workers need and deserve”. But amid recovery from the nation’s worst economic shock since the 1930s Depression, the viability of struggling businesses and their potential to invest and create jobs must be factored in. Chartered Accountants Australia and New Zealand leader Tony Negline says the focus must be on reducing the burden of costs to business — not increasing them. In August, Reserve Bank of Australia governor Philip Lowe warned that lifting the super guarantee would reduce wages and cut consumer spending, and could ultimately cost jobs.

Anthony Albanese has drawn premature election battlelines over the Morrison government’s move to delay a decision on whether it will raise compulsory employer contributions to workers’ super funds from the current 9.5 per cent. Postponing the decision until the May budget will allow the government to make a final decision before the super guarantee is due to rise to 10 per cent on July 1 next year, as it heads towards the legislated goal of 12 per cent by 2025. The Opposition Leader is attacking the government’s approach along ideological lines, claiming the Coalition “has never supported universal superannuation”. Amid high unemployment in a low-wage environment, Mr Albanese is taking a risk. Given the choice between a small pay rise and a 0.5 per cent increase in super, many workers, especially those aspiring to buy homes, pay them off or pay off HECS debts, would opt for the pay rise. According to the review chaired by former Treasury secretary Mike Callaghan, freezing the super guarantee at 9.5 per cent would give middle-income earners a pay boost of about $32,400 across their working lives, roughly equivalent to the $32,900 reduction in their retirement savings. For lower-income earners, however, the wages boost of $12,200 would fall far short of the $28,000 loss to their retirement nest eggs. The income boost for wealthier workers of a freeze, about $58,200, would erode their retirement savings by $147,000.

The issue is not all about current living standards. Many workers prefer diversifying their retirement savings by investing directly in shares, through share trusts or investment properties, rather than relying wholly on superannuation or the pension. Those who prefer building up their super can always use their pay rises to increase their voluntary contributions — with appropriate tax advice.

The Weekend Australian recognises the benefits of the super system established by Paul Keating. It has put Australian workers in an enviable position compared with those in most nations, in an era when ageing populations in developed economies will put increasing pressure on social security systems. The system has created a $3 trillion savings pool for investment and over time is reducing retirees’ dependence on the full Age Pension. At the same time, many Australians’ superannuation balances fall far short of what is needed to sustain a comfortable retirement. Factors such as continuity of employment and the costs of bringing up children affect the balances of super accounts, as the review notes. But fee gouging by fund managers, the poor investment returns of some funds and lack of transparency are serious problems. As we have argued before, until those issues are addressed the compulsory contribution rate should not be lifted.

In his budget, Josh Frydenberg introduced reforms that should give savers a better deal. The Treasurer is targeting duplicate superannuation accounts, which cost members in fees, by “stapling” an account to an individual so that it moves with them when they change jobs. Funds that underperform across two years will be barred from receiving new members. And an online comparison tool, similar to the MySchool website, will give workers a more informed choice about who manages their retirement incomes.