A proposed move by the Morrison government to offer workers a choice between a pay rise or an increase in their compulsory rate of superannuation has been slammed by industry groups.
The Sydney Morning Herald reported on Wednesday that the opt-in superannuation increase was one of a raft of proposals being considered by the government in a bid to manoeuvre its way around the looming legislated rise in the superannuation guarantee.
The compulsory rate of superannuation is 9.5 per cent but is scheduled to rise to 12 per cent by 2025, something that the Morrison government committed to before the last election. The next legislated increase is scheduled to occur from July.
However, the government is considering a model that would see workers given the choice to put more of the money into super, or to take the increase as a pay rise. The plan could include letting the super guarantee rise to 10 per cent and making the final 2 per cent optional.
Both the Australian Institute of Superannuation Trustees (AIST) and Industry Super Australia (ISA) were heavily critical of the proposal, suggesting it would leave many Australian workers financially worse off.
AIST chief executive Eva Scheerlinck said the Morrison government seemed intent on undermining financial outcomes for Australians in retirement.
“Consumer research has repeatedly shown that Australians strongly support our compulsory super system rather than one which is opt in,” Ms Scheerlinck said.
“There is a broad understanding that unless we are compelled to save a portion of our wages, very few of us will have enough money for a financially secure retirement.”
Ms Scheerlinck explained that as the superannuation increases were incremental, it would result in very little extra cash if taken as a pay rise and the money would be eroded by additional income tax as well as losing out on the benefits of compounding interest on their savings.
“There are lots of ways to deal with low wage growth but forcing people to use their retirement savings to fund their own pay rise shouldn’t be one of them,” Ms Scheerlinck said.
“This is especially so for older workers on low incomes who can use super to top up the full age pension in retirement.
“The median super balances for 55-to-64 year olds are $183,000 for men and $118,600 for women, based on 2018 (latest available) Bureau of Statistics data. A balance of this size will add more than $100 to the $470 weekly income of a single pensioner.
“For older workers who are some years off retiring having an extra 2.5 per cent of their wages go into super will make it just that much easier to meet daily expenses and enjoy a quality retirement.”
ISA said the proposals would rip billions of dollars from the pockets of workers and deliver them to the government in the form of higher taxes.
According to ISA, up to two-thirds of a pay increase could be lost in higher taxes and reductions and other government support payments.
ISA chief executive Matthew Linden said the plan was underhanded and would force workers to pay for their own wage increase.
“Removing the guarantee in the super guarantee to make it ‘optional’ is a recipe for higher taxes, lower lifetime incomes, and a red tape nightmare for business,” Mr Linden said.
“The government should follow through in the legislated increase to 12 per cent and not be exploring underhanded ways to renege on it.
“This isn’t choice – it’s a sneaky tax grab that will leave people worse off and rip up one of the system’s founding principles.”
Would you prefer a choice between a pay rise or a super increase? Which one would you choose?
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https://www.yourlifechoices.com.au/retirement/what-to-consider-before-switching-super-funds
https://www.yourlifechoices.com.au/finance/superannuation/36-billion-sucked-from-super
