- Findings from the government’s Retirement Income Review has already stirred up debate, after opening the door for another freeze of compulsory super.
- The argument goes that by not increasing the super guarantee (SG) to 12%, workers will be able to pocket higher wages, which will potentially help them into the property market.
- However, the idea has many opponents, with some disputing the impact of those savings and the outcome it will deliver for retirements.
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The only guarantee you can count on when it comes to superannuation is that discussion over it will ignite warring political factions.
The final report of the Retirement Income Review released on Friday has done just that, as it reopens furious debate over the future of compulsory super.
Its findings appear to rationalise the argument, articulated most vocally by Liberal MPs like Tim Wilson and Andrew Bragg, that the family home should be prioritised over it.
The idea is at least partly rooted in ideology. With union-aligned industry super funds controlling large amounts of capital thanks to the compulsory super system, the Coalition has two-decade history of undermining increases to it.
Indeed, consecutive Coalition governments have successfully stopped compulsory contributions, also known as the super guarantee (SG), from rising to 12%. Originally slated for 2001, it’s currently scheduled for 2025 if it ever comes at all.
On the other side of the aisle is Labor, to whom former Prime Minister and superannuation architect Paul Keating belongs.
So: what’s at stake, and what are the counterpoints?
A massive reduction in retirement savings
With superannuation accumulating over the course of a working life, the fruits or follies of the system are really only apparent over decades.
Without the extra 2.5% per year in retirement savings, the average worker contributes $4,600 instead of $5,800 to their super account each year. Over 40 years, and assuming returns of 6% per annum, you’d be around $200,000 poorer in retirement.
For clarity, that’s in the unlikely example you’re earning $48,000 over that lifetime. For most Australians, earning more as they gain experience, they’d likely be much worse off in retirement without the 2.5% super.
While it’s impossible to quantify exactly what every individual’s loss would be, it’s clear that it would run into the hundreds of thousands of dollars for most people.
“The two thirds of Australians who support the legislated and long-promised super increase would not take too kindly to politicians, who pocket 15% super on top of their generous salary, using this review to snatch away their retirement savings,” Dean said.
What are you gaining?
The Coalition, if it refocuses on housing, will argue that actual wages in workers’ pockets will grow as a result of the pocket.
Wage growth, it argues, has been held back because employers are having to chip more into super as the SG rises. While there’s a perennial dispute over whether or not that is a factor, wages also haven’t soared without it.
Don’t believe the Liberals when they say freezing the Super Guarantee is all about boosting wages. In the 6 years before the last time they froze it, wages grew at 3.3% on average. In the six years since then, wages have grown at record lows and an average of 2.08%. #auspol pic.twitter.com/LVBC4sTvK2
— Jim Chalmers MP (@JEChalmers) November 20, 2020
Super contributions have been stuck at 9.5% since the middle of 2014 and wage growth have been decidedly sluggish for much of those six years.
It’s also difficult to guarantee employers would pass on those super savings to workers in the form of increased wages.
“We hope [this report] will not be used to ask Australians to sacrifice hundreds of thousands in guaranteed retirement savings for a vague promise of a wage increase that history shows will not occur,” Industry Super Australia CEO Bernie Dean said.
Even if they could be, they would still show up as a relatively small increase in weekly wages. Even as the full 2.5% increase, which workers would still wait 5 years for, the median weekly pay packet would increase by around $23 dollars a week before tax. A figure that may be spent sooner than it’s saved.
Everybody check your superannuation balance today:
Now be honest – how much would you have in it if it wasn't for compulsory superannuation?
— Stephen Koukoulas (@TheKouk) November 19, 2020
Again, 50% of workers could expect more than that. But if that was consistently applied to the entire workforce, it would be high-income earners that would accumulate the most substantial pay rises, who disproportionately hold a higher rate of homeownership anyway.
Meanwhile, among those who disproportionately represent renters, an extra $23 a week is unlikely to elevate many into homes overnight, especially in capital city markets like Sydney and Melbourne.
It could instead, some argue, disproportionately hurt lower-income workers and women in pursuit of an unachievable goal.
“For many of our members, on average annual incomes of around $45,000, home ownership is simply not a reality,” Julia Fox, chair of the ACTU’s women’s committee, said.
Instead Fox said that ‘women can’t afford another freeze’, arguing for greater reform of super rather than a move away from it.
The issue of placing all eggs – or nest eggs – in the property basket, is that it threatens to help drive prices higher as well.
When politicians talk about cracking open to super for home deposits, without tackling the fundamentals of housing affordability and undersupply, it can risk pushing prices up higher, negating the relative advantage of using super, and essentially extinguish those savings all in one.
It doesn’t mean the Retirement Income Review is wrong, or that home ownership isn’t a major help in retirement – or even that the super guarantee should continue rising.
But the possibility of finding a solution that appeals to both sides of the aisle seems distant.
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