A Labor government will stick to plans to increase superannuation contributions to 12 per cent, as doubts emerge about the need for the planned increase.
Federal shadow treasurer Chris Bowen told a banking and wealth summit on Tuesday that Labor was committed to the legislated super increases from 9.5 per cent to 12 per cent by 2025.
“Let me make it clear that the Labor Party does not regard a 9.5 per cent super guarantee as providing adequacy,” Mr Bowen told attendees.
We will brook no further delay to the legislated timetable.”
Shadow treasurer Chris Bowen
Mr Bowen’s emphatic guarantee came after modelling by Treasury this week reportedly showed the age pension is on track to cost the nation less than predicted.
The Australian reported that the Treasury retirement-income modelling found the share of GDP spent on the age pension will fall to 2.5 per cent by 2038 – “significantly lower” than previous estimates, raising the possibility that the increases could be frozen or even scrapped.
But Association of Superannuation Funds of Australia (ASFA) chief executive Dr Martin Fahy told The New Daily the figures – if accurate – prove precisely that superannuation was working and reinforced the argument for the planned employer contributions to increase from 9.5 to 12 per cent.
“What that report appeared to be saying was that the burden of the age pension continues to decline, and so the previous Treasury forecasts have been shown to probably be high,” Dr Fahy said.
“That creates a very strong case for saying that superannuation is working, and that by going to 12 per cent as is legislated, it will continue to work, in that people will continue to retire with higher retirement balances, the burden of the age pension will continue to fall, and we’ll be able to therefore pay out higher state pensions to those who deserve it and need it.”
Dr Fahy’s comments come amid calls from other quarters to scrap the increases, which are scheduled to start in July 2021 with 0.5 per cent increases each year to 2025.
Paul Versteege, policy director with the Combined Pensioners & Superannuants Association, supported the increases, and even suggested raising the guarantee to 15 per cent.
But he does acknowledge the cashflow “tension” this may cause for lower-income earners in the short term.
“What concerns us more is that people on very low incomes, forcing them to save 15 per cent of their income might make their life now very difficult because they have to pay their bills and pay mortgages as well,” he said.
“We accept that if you want to be self-sufficient in retirement you need to make a higher contribution than the 9.5 per cent that applies at the moment, but as I said, we can see the downside of increasing that compulsory contribution as well.”
Low-income earners to benefit
Industry Super Australia’s (ISA) deputy chief economist Matt Linden said lifting the super guarantee will be “more impactful” for lower and middle- income earners, and challenged the Grattan Institute’s modelling that suggested high earners would benefit most from the increases.
“It’s particularly important for lower and middle-income workers, because that’s a group who are often not making additional savings,” he said.
ISA research in late 2018 found that scrapping the increases would cut as much as $108,000 from retirees’ final balances.
The ISA work found that across three average income levels, $50,000, $80,000 and $100,000, failing to increase the super guarantee contributions would cost retirees $56,393, $89,589 and $108,178 respectively.
Wealthier Australians are unlikely to be greatly affected by the increase, Mr Linden said, as caps on concessional contributions will limit the amount that can be voluntarily deposited into super.
Dr Fahy agreed that an increase would help low-income earners, but also noted that “it’s important not to make assumptions about people’s incomes” when setting superannuation policy.
“The beauty of the super system is that everyone has the aspiration to be self-funded, and by going to 12 per cent it means even those on the average industrial income can look forward to having a comfortable and dignified retirement.”
The New Daily is owned by Industry Super Holdings.