Finance Your Super Worries about 12 per cent super rubbished by industry

Worries about 12 per cent super rubbished by industry

A businesswoman uses a vacuum labelled 'superannuation' to collect money.
Grattan Institute says increased super contributions will reduce wages. Photo: Getty
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A report claiming workers stand to lose billions in wages annually if the superannuation guarantee is increased to 12 per cent has been rubbished by industry leaders as “deeply flawed”.

The Grattan Institute released numbers suggesting workers will be $20 billion worse off each year from July 2025 if the increase in the superannuation guarantee is fully implemented to its currently legislated timetable – a policy both Labor and the Coalition look set to implement.

The data was slammed by the superannuation sector. Industry Super Australia chief executive Bernie Dean said the research was based on false assumptions.

“The Grattan Institute’s modelling is deeply flawed by overestimating contributions, overestimating payouts, making half the population live too long, and failing to reflect the distribution of retirement savings and the persistence of low balances,” he said.

“This misconceived modelling is not supported or peer-reviewed by any reputable macroeconomic research and shows a complete lack of understanding of how to get the best out of Australia’s retirement system.”

Low-income earners and the self-employed are overlooked, Mr Dean said. He added that women are either not represented or “somehow miraculously don’t take time out of the workforce to have children”.

Grattan’s argument

Speaking to The New Daily, the Grattan Institute’s Brendan Coates argued any increases to the guarantee will come out of workers’ pockets.

“The idea that’s floating around at the moment, that somehow at a time when wages growth is at record lows, that employers will suddenly give workers an extra free kick via compulsory super out of the goodness of their hearts when they seem unwilling to give wage increases is just fantasy,” he said.

“In the past when compulsory super contributions went up, if they came out of somewhere other than wages we should have seen an increase in the labour share of income during that period.

“What we instead found though, was that in Australia the labour share of income fell … That’s really hard to square with the idea the increase was coming from employers, and not wages.”

‘Referendum’ on wages

With wages as a percentage of the national economy at their lowest point since the 1950s, and both major parties offering vastly different plans to lift the otherwise stagnant growth in take-home pay, the May 18 federal election has been described as a ‘referendum on wages’.

Labor has so far pledged a “substantial increase” to the minimum wage if it forms government, but the Coalition has cautioned that such an increase will fuel unemployment.

However, both parties are currently united in their plans to increase the superannuation guarantee to 12 per cent, as is currently legislated.

A table showing when the super guarantee will lift, and by how much.
Guaranteed super contributions are scheduled to start increasing from July 2021.

The Grattan Institute said that commitment from both sides of politics will result in “wage cuts that workers can’t afford, in exchange for extra super that won’t help them much”.

This assertion was also met with criticism from ISA’s Mr Dean.

“In the current climate of stagnating wage growth, an increase in the super guarantee is an effective way to increase the overall remuneration of workers – particularly those lower-income earners because it will be required over and above the award,” he said.

“For every dollar of super saved, its real value increases four-fold – meaning the Grattan Institute’s flawed plan to freeze the super guarantee at 9.5 per cent would be a net cost that would reduce retirement incomes and drive up the age pension costs.”

The New Daily is owned by Industry Super Holdings

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