Make no mistake about it, there is a trillion-dollar war that is waging over your future superannuation.
The fight is all about the legislated rises that are due to take the percentage of salary paid into superannuation from the current 9.5% to 12% by 2027.
Those few percentage points might not seem like much to fight about but they add up to billions of dollars going into retirement savings every year and over time will add up to the forecast $4.8 trillion increase in super by 2035.
Naturally the superannuation funds and average workers are in favour of the legislated increase in the super guarantee, which will increase the retirement living standards of millions of retired workers and also increase the size of the superannuation pool the big funds will be managing into the future.
Will higher super payments cost lower paid workers wage rises?
However, there are some significant forces pushing in the opposite direction – including many backbench Liberal MP’s – arguing that the planned rises are robbing people of pay rises that they need now and that there is no justification for further superannuation rises.
The issue was brought into sharp contrast by a submission to the Coalition’s imminent retirement income review by Australian National University associate professor Geoff Warren and his team.
They found that there was no single superannuation guarantee that suits all income levels and questioned the wisdom of “imposing a higher SG because it suits some”, which could lead to “oversaving’’.
The research also found that an increase in compulsory super could see members sacrifice pre-retirement living standards without seeing the benefits if they die with unused balances.
Government sticking with super increases – for now
The Prime Minister, Scott Morrison, Treasurer Josh Frydenberg and the Financial Services Minister Jane Hume have all said the government is still committed to the scheduled super increases.
However, several Liberal MPs, including the chair of the parliamentary committee on financial services, James Paterson, the chair of the economics committee Tim Wilson, MP Jason Falinski and Senator Andrew Bragg have all previously raised concerns about planned rises in the superannuation guarantee.
Research by the Grattan Institute last year also found that higher super guarantee payments were reducing the size of employees’ pay packets.
Low income workers need higher super payments than high income workers
As might be expected, the ANU modelling found that workers on higher salaries did not need to make super guarantee payments as high as those on lower salaries to have a reasonable retirement income.
So, someone earning more than $60,000 a year would only need a compulsory super rate of 9% to save for a comfortable retirement – which is currently $44,000 a year for someone who owns their own home.
A worker earning $90,000 would only need 6%, while those earning $150,000 would only need a super guarantee of 3%.
Professor Warren said a 12% or higher super guarantee payment might be appropriate for workers with more inconsistent employment patterns, who wanted to retire earlier, or expected to live to a 102.
The numbers rise considerably if the retiree doesn’t want to rely on the government pension at all, with the research finding a worker earning $60,000 a year would need to save 20% of their income while a person earning $105,000 would need to save 12.5%.
Super guarantee takes away flexibility
Professor Warren said if the super guarantee was set too high, workers could not change anything but if it was set too low, they could contribute more themselves.
He did admit that needed to be balanced against the reluctance of many workers to contribute any more than the mandated minimum super guarantee.
As you might expect, that challenge to further rises in the superannuation guarantee has not gone down too well with the superannuation funds, who were quick to point out that the assumptions in the research did not take into account real world facts such as employment breaks by parents to look after children, casual or part-time workers or those without a continual work history.
The also did not factor in the fact that many retirees had assets outside of superannuation.
Industry super bits back at “fantasy’’ research
Industry Super Australia, which manages projects on behalf of 15 large, not for profit industry funds, said the ANU study was deeply flawed and used modelling that came from a “fantasy world’’ and made dangerous conclusions.
Industry Super Australia chief executive Bernie Dean said the research was not benchmarked to reality and has not factored in unpaid super or breaks in employment.
“In this fantasy world women and children don’t exist and it assumes all men work continuously for more than 40 years and have no assets outside of super,” said Mr Dean.
“It draws dangerous conclusions – if implemented, millions of Australians would be left struggling to make ends meet on the pension, or forced to work until they drop.”
Workers could lose $85,000, or more
Modelling by Industry Super Australia found that a 30-year-old worker earning about $85,000 could lose out on $85,000 in super by retirement age if the future SG rises were lost.
So, there you have it, the battle lines have been drawn for the coming Coalition’s imminent retirement income review which is set to look a whole range of issues, including the interplay between superannuation and the age pension and other retirement savings.
Any findings that super guarantee payments don’t need to rise as planned to 12% would perhaps give the Government and employers a way to opt out of the rises, with potential six figure changes to many younger worker’s super balances at retirement.
They are very big stakes to fight over and this is one inquiry that will need very close examination.