Low wage growth has cut $40,000 from the retirement wealth of the average 30-year-old and dropping scheduled rises in the superannuation guarantee would only make the situation worse, according to Labor Shadow Treasurer Jim Chalmers.
Speaking at the Association of Superannuation Funds of Australia conference, Dr Chalmers said, “In the six years before the [Abbott] government froze the Super Guarantee in 2014, wages grew at about 3.3 per cent. But in the six years since, wages growth has averaged barely 2 per cent.”
“The last super freeze didn’t spur wages growth. On the contrary. Under this government, now in its eighth year, wages have hovered around record lows – the longest period of sustained low wages growth in Australia’s history,” Dr Chalmers said.
There was no ‘either or’ trade off between wages and super but low wage growth was itself having a devastating effect on retirement incomes.That is because lower wage growth means also lower growth in super guarantee payments, which are a percentage of wages and salaries, Dr Chalmers said.
“If wages had not been so weak since the 2014 super freeze then the average 30-year -old could have an extra $40,000 in super when they retire,” he said.
Superannuation and Financial Services Minister Jane Hume told the conference that the government’s pandemic driven superannuation early release scheme, which had seen 3.46 million Australians withdraw $36.4 billion from their accounts had been a success. This was despite critics, some of who were “particularly loud, patronising and self-serving – hurling mud from the sidelines,” Senator Hume said.
“It was the right policy at the right time, and those who stepped up, who worked with government and regulators under enormous time pressure and logistical constraints, should be proud of an emergency measure that helped more than 3 million Australians.”
“Early release helped them pay down debt, pay mortgages, cut up credit cards, and create a more stable and secure financial environment,” Senator Hume said.
Pension costs would rise
New research from Industry Super Australia found that if the SG is not increased to 12 per cent (from the current 9.5 per cent) by the scheduled time of July 2025 the overall cost of the age pension system will rise significantly. That is because the resulting lower super balances would see a growing number of retirees more reliant on the pension than they would be were the SG to rise as planned.
“As more people retire without the benefit of the legislated super boost, pension costs climb up billions each year – rising to an extra $33.3 billion (in today’s dollars) over the period to 2058,” the research found.
An increased reliance on the pension would not make up for the loss of super savings resulting from the lower SG, ISA found. Today’s average earning 30-year-old couple would still lose $160,000 in income over their retirement despite the taxpayer having “to tip in an extra $83,000 from the pension,” ISA found.
The progressive rise in pension costs would come despite the actual number of those retiring every year peaking in 2026. That is because the wave of baby boomers currently entering retirement is expected to live well into their 80’s.
Senator Hume said that superannuation had “proven to be the most frustratingly partisan sector of financial services.”
While government changes had saved billions in retirement funds for Australians and “the ATO reports that since 1 November 2019, $3.7 billion of inactive savings has been proactively consolidated into the active accounts of almost 2 million people,” critics had found plenty to be unhappy with.
“Bewilderingly – it seems more of the government’s changes have been contested for an opportunity to shout about philosophy or legacy than to unpack the merits of substantive policy and reform,” Senator Hume said.
Lower for longer
The problem of low wage growth is only expected to get worse, Dr Chalmers said. “Following the weakest wages growth on record before COVID-19, the RBA expects wages growth to hit a new low of 1 per cent, not returning to a still-historic low of 2 per cent by mid‑2023. ”
Minuscule wage growth is “not accidental,” Dr Chalmers said. “It is a “deliberate design feature” of the Government’s economic policies in the words of their longest-standing finance minister [Matthias Cormann]”.
The frequent calls from Coalition members for the scrapping of SG rises, giving workers the choice between an increased SG or a 2.5 per cent pay rise and the opening of super accounts for first home purchases were part of a campaign, Dr Chalmers claimed.
“Attacks on super are as deliberate and calculated as their attacks on wages. We are dealing with a Liberal Party that is going down a spiral of dangerous ideology and extreme partisan envy, taking workers’ wages and super with it,” he said.
The government’s plan is for a coordinated life incomes policy, Senator Hume said. The Coalition’s goal extends beyond improving retirement outcomes. Rather, it is to smooth the living standards between working life and retirement.
She also criticised a recent call by welfare group ACOSS to tax superannuation income at 15 per cent to pay for aged care. “We have no intention of burdening Australians with a retiree tax,” she said.
The New Daily is owned by Industry Super Holdings