Australian workers could be losing almost $13,000 in superannuation owing to a loophole that allows employers to hold on to guaranteed contributions for up to four months.
Research conducted by Industry Super Australia (ISA) found that someone working from the age of 20 to the day before their 67th birthday will be $12,475 worse off at retirement if their employer paid their super contributions on a quarterly basis rather than fortnightly, as they miss out on accruing interest.
That figure isn’t insignificant, either.
Based on data published by the Association of Superannuation Funds of Australia (ASFA), $12,475 would equate to 4.6 per cent of the average man’s super balance at retirement ($270,7190), and 7.9 per cent of the average woman’s ($157,050).
In 2015 alone, the ISA research shows Australians missed out on a cumulative $225 million in interest.
What’s more, a record of super entitlements on a payslip isn’t a guarantee that those entitlements have been deposited into an account, meaning employees will have to check their super balances manually to ensure their money has gone in.
ISA chief executive Bernie Dean said the losses were “not fair” to workers, and the current tax office rules requiring contributions to be made quarterly need to be changed.
“Every penny counts in retirement, and this interest could be the difference between having enough and going without,” he said.
Xavier O’Halloran, the acting head of advocacy with Choice’s superannuation consumer centre, likened the losses to “wage theft” and similarly supported a change in the rules.
“We see a strong need for employers to move to paying super when they pay wages. I think that would simplify so many parts of the system,” he said.
Possible risks to businesses
Australian Chamber of Commerce and Industry chief executive James Pearson said more frequent payments “would benefit members” if done well, but encouraged a collaborative approach between regulators and businesses in redesigning any regulations.
“The majority of employers pay monthly or more frequently, but small employers are more likely to pay quarterly,” he said.
“We need to understand the barriers to more frequent payments, particularly for small employers, and how they can best be overcome. It’s important that regulators work closely with employer and superannuation industry representatives in order to resolve these issues.”
However, speaking to The New Daily, Grattan Institute’s Australian perspectives fellow Brendan Coates said there was little justification for not paying super contributions alongside regular salaries.
“In a world where most small businesses have access to electronic payroll systems and are already paying wages on a fortnightly or monthly basis, then they should be able to pay superannuation on that same basis,” he said.
Mr Coates said the biggest challenge that more frequent payments would impose on businesses would be the impact it would have on cash flow, “but that doesn’t mean it’s not the right thing to do”.
“This is a form of employment compensation that people have earned. It should be in their super fund delivering them a return as soon as it can,” he said.
“Some businesses seem to be using that money as an extra buffer on their cash flow.”
The New Daily is owned by Industry Super Holdings