Prime Minister Malcolm Turnbull leaves door open for freeze on super
Government warned that changes to the superannuation guarantee will hurt retirement savings as well as the federal budget.
Any decision by the Turnbull government to abandon increases to compulsory superannuation contributions would be a disaster for the retirement savings of ordinary Australians, say key super industry figures.
On Friday, Prime Minister Malcolm Turnbull refused to rule out a controversial change to superannuation that would see the super guarantee levy frozen at 9.5 per cent.
The levy, paid to workers’ super funds by their employers, is due to rise to 12 per cent by 2025, helping to ensure a comfortable retirement for people on low to middle incomes and alleviate pressure on the pension system. But reports, apparently emanating from the Coalition party room, claim the government is looking at freezing the levy, leaving workers with less when they retire.
The prospect of holding the levy at 9.5 per cent has drawn heavy criticism from the Labor opposition and the superannuation sector, with IFM Investors chair Garry Weaven* saying “the shame of it is that this sort of measure hits ordinary wage earners and not the high fliers in the community.”
If the levy remains at 9.5 per cent “and you started working now it would not give you anything like an adequate retirement”, Mr Weaven said.
Mr Turnbull tried to distance himself from the proposal saying “the Government has got no plans to change the rise in compulsory super.”
However he did not deny the move was up for discussion, saying: “What is happening at the moment is that we’re having a very lively debate about tax and economic reform and so all sorts of proposals are swirling around.”
Current setting ‘inadequate’ for women
Senior superannuation industry executives said it was evident Mr Turnbull had not categorically denied the government would be leaving the levy plans untouched.
Catherine Wood, the national chair of Women in Super and chair of CareSuper, said any move to freeze contributions would be harmful for women in particular, who on average already retired with around half the super balances of men.
“There’s absolutely no way that 9.5 per cent is sufficient for women to end up having a comfortable retirement,” Ms Wood said. “There needs to be a considered policy approach to what we want the superannuation system to deliver.”
David Whiteley, chief executive of Industry Super Australia (ISA), which represents not-for-profit funds, said: “it is hard to believe the government would seriously consider capping increases to universal, compulsory super, one of the major pillars in our retirement income system and our economy.”
“These proposals would reduce individual savings of millions of super fund members, reduce national savings and increase pension outlays,” Mr Whiteley said.
ISA research shows a typical female industry super fund member, earning at most 70 per cent of average full-time wages, could expect to lose $74,293 in retirement benefits in real terms over her entire working life under the proposals.
Mr Whiteley said the proposed freeze would cut a person’s super balance at retirement by 20 per cent and reduce national super savings by more than $900 billion by 2055.
ISA modelling also shows the government would need to pay 6 per cent more in age pension outlays to make up for the shortfall in superannuation savings, which would increase pressure on taxpayers and the long term budget.
The Treasury department has “identified the budget costs” of increasing the super guarantee “as an avenue to further savings”, according to The Australian newspaper, which did not name a source.
The government and employers would benefit
Other super proposals could see an increase in the tax rate applied to superannuation contributions from the current flat 15 per cent level for most working Australians, a move that would skim billions of dollars more into the Commonwealth’s coffers.
Such measures would combine with changes already announced, including a lowering of the amount of assets individuals or couples can have outside of their family home to quality for the aged pension from January 2017, and the scrapping of the low income superannuation contribution from mid 2017.
Legislation to progressively increase the retirement age and eligibility for the Age Pension from the current 65 out to 67 will also come into effect next year.
Pension costs would rise
Meanwhile, Pauline Vamos, the chief executive of the Association of Superannuation Funds of Australia (ASFA), said a potential freeze in the rate of the superannuation guarantee would also lead to increased government expenditure on the aged pension in the near future.
According to ASFA estimates, retaining the super guarantee of 9.5 per cent would result in around 40 per cent of retirees relying on the full aged pension by 2050. The government expenditure on the aged pension would consequently need to rise by approximately 25 per cent.
Council of the Ageing chief executive Ian Yates said no further changes to the system should be made until a full independent review is conducted.
“Our position has been constant for a long time that we need a proper independent review of the superannuation system,” Mr Yates said.
“Any changes should be based on proper actuarial research, and super shouldn’t be kicked around as a political football.”