The drums are beating for overdue reform to super rules for Australia’s most vulnerable employees – especially younger workers and women.
The growth in recent years in part-time and casual work, plus the rise of the ‘gig economy’, has left a blatantly unfair hole in the super system.
The problem is the arbitrary $450 per month threshold for triggering compulsory payments into a worker’s super fund.
Anyone earning more than $450 a month receives the 9.5 per cent ‘super guarantee’. But below the threshold, employers don’t have to make such a payment – they effectively get a wage discount.
Scrapping the $450 threshold has been raised in submissions to a Senate inquiry into the workings of the superannuation guarantee, with the inquiry’s deputy chair, Liberal senator Jane Hume, stating publicly that “the Turnbull government should examine it in the near future”.
Senator Hume reiterated that message earlier this week, saying the issue needed “urgent attention”.
The sooner the better. Employers may be celebrating the rise of the ‘flexible’ worker, but at ground-level the same workers are better described as worried, vulnerable, disadvantaged and frustrated.
How could this unfair regulation have been left in place for so long?
It was created in the early 1990s, when earning $450 a month meant the employee was just below the annual tax-free threshold of $5200.
But the tax-free threshold is now more than three times that size, at $18,200, so the $450 threshold looks more arbitrary than ever.
The Association of Superannuation Funds of Australia (ASFA) has calculated that a young student could forgo $1900 over five years because of the rule, and a 37-year-old single mum could miss out on $1425 over three years.
Even at a modest annual growth rate of 3.5 per cent, those figures would mature to become $9090 and $3860 respectively by retirement.
At a more ‘normal’ compounding growth rate of, say, 6 per cent, those numbers would be closer to $26,000 and $8000.
Even adjusted for inflation, those figures would be a valuable top-up for super balances at retirement.
That’s especially so for women, who are currently retiring with super balances that on average are just 47 per cent the size of their male counterparts.
And yes, women are heavily over-represented in that group.
Workers with two or three low-paid jobs – each earning less than $450 per month – can miss out on three times the super contributions.
The small business community, though sometimes at fault for failing to pay super contributions, is keen overall to see the same reforms introduced into Parliament.
That’s because while the occasional dodgy operator may seek to exploit the current laws – taking on three sub-$450 employees to do the job of one worker, for example – for most small businesses, adding up the small dollops of super is a pain.
The Council of Small Business of Australia (COSBOA) wants a second aspect to the reform. It would like superannuation calculations run through the normal pay-as-you-go (PAYG) tax system.
That would mean the employee’s super entitlements would still appear on their pay slip as a separate line, but with the ATO then being responsible for handing the money onto the worker’s nominated super fund.
The other option, also called for in Senate inquiry submissions, is to give the ATO greater powers to peer into the books of superannuation funds to ensure a worker’s contributions match up with their stated earnings.
Either way, COSBOA chief executive Peter Strong says small businesses don’t want to handle the administration.
The upside of such a move is more than saving SME owners a bit of elbow-grease.
It would also ensure that no backlogs of missing money could build up over time.
That would be an added layer of protection for vulnerable workers, because when a small business collapses, there is often nothing left to make good on unpaid super commitments.
While the reform might look like small beer to some, to the growing pool of underemployed workers it’s a hole that urgently needs filling.