Treasurer Scott Morrison’s proposal to allow 18 to 24-year-old workers to opt out of the super system by receiving their super contributions as a wage increase would shave around $20,000 from final retirement balances according to Industry Super Australia (ISA).
Matt Linden, ISA public affairs director, said “we estimate that allowing 18 to 24-year-olds to opt out super contributions would mean they would be around $20,000 worse off on retirement.”
The figures would apply to someone working continually at the average wage through to retirement at 65.
“It’s probably one of the worst times not to make a contribution because you miss out on the effects of early compounding,” Mr Linden said.
The power of compounding is far greater for younger people than for those in their 50’s, Mr Linden said. “Each dollar compounding in your super fund from your early 20’s is worth $4 on retirement.”
“Whereas a dollar going into your fund in your mid-50’s only compounds to $1.60 in retirement,” Mr Linden said.
The proposal to allow young people to opt out has been heavily criticised with the Council of Small Business of Australia, the Australian Council of Trade Unions and the Australian Council of Social Services all coming out against the idea.
People in the 18 to 24 year age group would typically earn $1900 in employer superannuation contributions or $36 a week. If they earned $37,000 a year the figure rises to $65 a week.