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Not topping up your super? It may not be your fault

One of the largest superannuation research projects ever undertaken has unearthed new insights into Australia’s retirement savings system, including the failure of government incentives to boost workers’ balances in the last decade.

The new study, by academics from Monash University and the University of Western Australia, reveals a long-term slide in the number of Australian workers making voluntary contributions to their super accounts.

According to a draft research paper published earlier this month, only 17 per cent of Australian workers had entered salary sacrifice arrangements in 2012 compared to almost 25 per cent in 2003.

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Moreover, the percentage of super fund members making voluntary after-tax contributions fell from 15 per cent to five per cent during the same period.

One of the authors, Dr Jimmy Feng of Monash University, said the research findings were derived from the records of almost 300,000 super accounts provided by administration provider Mercer.

The findings may indicate that special government measures such as favourable tax treatments on voluntary contributions have not been effective.

While stressing that the research was not complete, Dr Feng told The New Daily that the findings pointed to a growing level of cynicism among super members towards the retirement savings system.

“The participation rate for voluntary contributions is low and has been falling,” he said. “Our suspicion is that people have lost faith in the system because of so many regulatory changes in the last decade.”

super1Dr Feng said it was difficult for most people to keep track of changes to super rules and that this problem was probably a major factor in people deciding to keep their savings in bank accounts.

Another contributing factor was the global financial crisis that caused most super funds to report negative annual returns in 2008 and 2009.

“To some extent people are sceptical about the money they’re putting in super accounts because the rules for accessing it seem to be always changing,’’ he said.

“We can’t verify that conclusion, but it is one theory that might explain the low levels of voluntary contributions.”

Dr Feng said the research also revealed that a larger proportion of male workers participate in salary sacrifice schemes than women.

super2“As men earn higher incomes than women and salary sacrifice is only tax advantaged for higher-income earners, such an observation was expected,” he said.

Trends identified by Dr Feng also indicate that efforts by retail and industry funds to raise public awareness about superannuation have been thwarted by the complexity of rules and changing policy settings.

David Whiteley, the chief executive of Industry Funds Australia, attributes the fall in the number of people making voluntary contributions to a range of factors including the global financial crisis and the system’s complexity.

“Constant change doesn’t help our efforts, there’s no doubt about that and it has contributed to disengagement with superannuation across the Australian community,” he said.

“The fact that fewer people are making voluntary contributions highlights the increased need for compulsory super.”

Superannuation trustees – the people who are legally responsible for overseeing the assets of super fund members – have called on the government to simplify the system.

In its submission to the Financial System Inquiry, the Australian Institute of Superannuation Trustees called on the major political parties to agree on common objectives for retirement savings.

“There can be no doubt that constant tinkering to the super system is damaging to consumer confidence,” said AIST chief executive Tom Garcia.

“Short-term policy tinkering won’t stop unless as a nation we can agree on benchmarks and clear goals for our retirement income system.”

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