Young workers locked out of generous super system

With the superannuation guarantee reaching a hefty 11% this month, there are now some very powerful reasons for making the system fairer for everyone.

Already, those on lower incomes of $37,000 or less are eligible for an automatic low-income superannuation tax offset (LISTO) of up to $500 per year.

And superannuation guarantee contributions were widened in July 2022 when previously workers needed to have earned above $450 in salary in a month to get the payments.

However, there is one really big discriminatory factor which is still damaging the super returns of many young workers that is now being targeted for change.

A new Industry Super Australia (ISA) report has found that young workers are missing out on thousands of dollars in retirement savings because of rules which effectively lock them out of the superannuation system.

That is a big deal for younger workers, about 90% of whom usually work less than 30 hours per week and are thus not receiving any compulsory super contributions.

Young workers losing out on $330 million a year

The report estimates that a staggering 375,000 Australian workers under 18 are losing a combined $330 million a year in super contributions because they don’t work more than 30 hours a week for the same employer.

Industry Super Australia chief Bernie Dean is leading a call on the federal government to change the laws, saying Australians are being penalised early in their careers by the “unfair” rules.

Due to the power of compounding interest over a long period of time, these young people are being seriously discriminated against just because they are starting out and work in different jobs or for fewer than 30 hours a week.

Age discrimination alive and well

“Locking thousands of teen workers out of our world-class retirement savings system is not giving them the super start to work they deserve,’’ said Mr Dean.

“How can we explain that young workers don’t get super while an older colleague doing the same job does?”

The initial reason for the discriminatory rules was that fees and insurance would erode the accounts of young workers at a time when fees were not capped on lower account balances.

Also, insurance was usually mandatory then but is no longer an automatic inclusion for those under 25.

About 75% of teenagers work some hours per week, according to Industry Super Australia, with the majority working most of the year.

According to ISA modelling, on average young workers would get an extra $885 a year in super contributions if the laws were reformed.

That becomes a really big deal over time, with that boost worth about $10,200, using average super returns and the ISA modelling.

According to Mr Dean, many young workers are not even aware that they are missing out on what could be significant payments and said that the existing system acted as a perverse incentive for employers to structure rosters to avoid the 30-hour threshold.