D-day looms for higher superannuation push

Until the early 1990s, superannuation was mostly the preserve of select professions and the public sector.

While saving for one’s retirement may have been encouraged, it was not compulsory.

That changed in July 1992, when the superannuation guarantee system was born. Employers were required to provide a prescribed minimum level of superannuation – initially three per cent of each employee’s salary.

Three per cent didn’t seem such a big amount all those years ago.

Eventually, the contribution rate climbed over the years to its present level of 9.5 per cent.

Under Federal legislation introduced in 2011, it is poised to reach 12 per cent in four years.

As outlined by the Australian Taxation Office, the superannuation guarantee contribution percentage is due to increase to 10 per cent in July this year, rising 0.5 percentage points each year until hitting the 12 per cent mark in 2025.

Getting it into double figures, however, is proving challenging.

Some government MPs are pushing back publicly, citing that employees should have more freedom to save as they choose. One alternative proposal is that younger contributors be able to direct some of their would-be superannuation contributions into buying a new home.

The Federal Government’s economic response to Covid-19 has given the debate some momentum, with superannuation fund members allowed to access part of their superannuation during 2020.

As the pandemic took hold, superannuation fund members were allowed to withdraw up to $20,000 – in two tranches – provided they could provide some economic hardship.

Almost five million applications were made under the early-release scheme, with superannuation funds paying out more than $36 billion.

That drew the ire of Paul Keating, who as Prime Minister in 1992 introduced compulsory superannuation for the Australian workforce.

Attending a superannuation conference on February 10, the former PM rounded on the early-release scheme, reportedly claiming that the cash was “spent on a new Kia car or a new pair of skis.”

Superannuation funds, whose assets under management have grown to around $2.9 trillion, are defending their turf.

The Australian Superannuation Funds Association is fighting vigorously for the legislated 12 per cent increase to proceed as per legislation.

It’s pushing the case that the 12 per cent contribution rate will bring Australia more in line with pension systems in other advanced economies, as well as boosting the retirement incomes of workers, including those on low incomes.

D-day on 12 per cent compulsory superannuation is not far off.

A decision will need to be made on whether to revoke the legislated increase during the Budget session of Parliament that starts in May.

In the meantime, stand by a vigorous public debate on the issue on whether more workers should control more of their income, or have more of it diverted by mandate into their retirement savings.

Gavin Clancy is a Senior Consultant with Lunik