Super members may be celebrating their tenth consecutive year of positive returns, but new modelling shows a freeze on super guarantee contribution increases in 2013-14 has already cost workers thousands of dollars.

Australia’s world-class retirement savings system has managed to return an average 8.8 per cent per annum since the 2008-09 financial year, helping to grow retirement savings by $1.3 trillion in just one decade.

It’s a remarkable feat, but new modelling from Industry Super Australia (ISA) has shown that members have missed out on thousands of dollars in returns as a result of a freeze on super guarantee contributions at 9.5 per cent.

Guarantee contributions were originally legislated under a Labor government to increase by 0.5 per cent per annum from the 2014-15 financial year until they reached 12 per cent.

The table shows the difference based on a median wage earner aged 30 in 2008-09 with an empty super account. Source: Industry Super Australia.

This ISA modelling shows someone aged 30 in 2008-09 earning the median income is already $2,531.19 dollars behind where they would be if the super guarantee increased in-line with the initial legislation.

That difference would translate to a reduction of hundreds of dollars in income each year in retirement.

The following table, based on the same assumptions as the case study above, shows the impact the freeze has already had on retirement income.

‘Including estate’ means that the left over allocated pension was counted as being spent at age 90. Source: Industry Super Australia.

“These figures show the damage that can be done to a worker’s nest egg by delaying an increase in super contributions,” ISA acting chief executive Matt Linden told The New Daily.

“Just ten years of delay could cost the average worker $22,000 in super by the time they reach retirement – that’s a lot of money.

“Further delaying an increase in super contributions will further eat into Australians’ quality of life at retirement and increase dependence on the pension.”

However, Chant West senior investment research manager Mano Mohankumar said members “need to be wary of the super industry holding up a 12 per cent guarantee as a sacred cow,” adding he would be “very comfortable” with future reviews into the super system assessing whether an increase would be appropriate.

“If we had moved to 12 per cent already, people would definitely have larger balances, and in hindsight maybe it would have been a good time for Australians to have put more money into their super [in 2013-14],” he said.

“But equally by staying at 9.5 per cent, people have more money in their pockets, and with wages stagnating maybe having more money in their pocket is what people want. I’d be very comfortable for a review to look at guarantee contribution sizes, and get everything on the table so we can see what the consequences will be.”

Mr Mohankumar’s comments come after independent think-tank Grattan Institute challenged the benefits of increasing guarantee contributions and called on Government to maintain the current 9.5 per cent rate.

Continued strength unlikely

The super industry’s 8.8 per cent per annum returns over the past decade have easily exceeded the targeted returns of CPI plus 3.5 per cent, which Chant West head of research Ian Fryer said reflected the “fantastic job” that funds – particularly profit-to-member funds – have done in managing their investments.

However, Mr Fryer cautioned that it’s unlikely the sector will be able to maintain such high returns moving forward.

“The reason we think that is because we’ve had such a good run so far,” he said.

“Part of the growth we’ve seen in the past ten years has been driven by the recovery following the Global Financial Crisis. You can ask if this might be the new normal, but that’s what people were saying in 2007 too, before everything fell apart.”

Chant West expect annual returns will instead fall back to a figure closer to the CPI plus 3.5 per cent target.