Though mandated to increase to 12% by 2025, the increase in the Superannuation Guarantee (SG) is being questioned in policy circles and by some government parliamentarians, particularly given the sustained lack of real wages increases in recent years. It is perhaps not surprising that the Australian Institute of Superannuation Trustees (AIST) would highlight data in favour of the existing policy, but does the case for the increase still stack up given the current economic environment?
Back in July, there were several articles published about the findings of a Grattan Institute study, which found that finds that increasing compulsory contributions from 9.5% of wages to 12%, (as has been legislated), would leave many Australian workers poorer over their entire lifetimes. For middle and low income Australian, the typical (median) 30-year-old Australian worker earning A$58,000 today would lose about 2.5% of wages each year and get less than a 1% boost to retirement income.
As a result, that person’s lifetime income would be almost 1% lower – about A$30,000 lower.
In discussions around the findings, the Superannuation lobby was criticised for always concentrating on higher retirement incomes while ignoring the income that workers have to forgo to get them. A cornerstone of the argument was that contributions paid by employers “appear” to come out of funds the employers would otherwise have spent on wages. Their calculations suggest that lifting compulsory super to 12% by 2025 will take up to $20 billion a year from workers’ pockets, and so for most, the trade-off isn’t worth it. Their analysis also pointed out that lifting compulsory super to 12% of wages would cost taxpayers an extra $2 billion to $2.5 billion per year in super tax breaks and that these were overwhelmingly directed at high-income earners, so the big winners from higher compulsory super would be the wealthiest 20% of Australian earners.
While it’s almost universally accepted that the increase to 12% is a good thing and a fait accompli, years of stubborn wage growth and “problems” with an inefficient super system had prompted a dozen or so coalition members to rebel against the rise arguing that an increased SG would cost workers a wage increase of 2.5 per cent. Critics also suggest it should be left up to individuals to decide if they want to increase their contributions, rather than having it mandated for them.
Those backing a rise say that the very fact that wage rises are not guaranteed is another good reason to increase the Super Guarantee as it would benefit ordinary wage earners in the form of 2.5 per cent invested in super that they may otherwise not receive at all. One suspects that there is also an element of politics in the opposition to the rise because it will swell the coffers of the dominant industry super funds even more.
A new poll by the Australian Institute of Superannuation Trustees (AIST) seems to discredit the argument that Australians want to decide for themselves how much super they contribute, finding that only 10 per cent of respondents said they somewhat or strongly disagree with raising the SG. The poll results also show that Australians support the superannuation system more broadly. The poll also found that more than seven in ten people agreeing superannuation provides benefits to Australian society through playing an important part of the Australian economy, which also allows them to plan for their retirement without relying on the aged pension.
So it would seem the Super increase is locked in - it will no doubt be of benefit to wealthier Australians who can afford it and are under less wage stress than other Australians, but what of the Grattan institutes arguments? Does anyone think they have merit?