How change could leave you $30k worse off
Typical workers would miss out on pay rises and could actually be $30,000 worse off when superannuation changes come into effect, according to a new analysis.
Superannuation has promised to make us better off in retirement, but Grattan Institute figures suggest many Australians may actually be poorer when compulsory contributions are increased incrementally from 9.5 per cent to 12 per cent between 2021 and 2025.
The institute has crunched the numbers and found raising compulsory contributions would leave many workers poorer.
The typical worker could lose about $30,000 over their lifetime.
This is partly because the money for extra superannuation contributions would likely come at the expense of wage increases.
"We found those on middle incomes would be worse off," Grattan household finances program director Brendan Coates told news.com.au.
"They would be giving up 2.5 per cent in wage increases but in exchange they wouldn't have a higher retirement income."
Mr Coates said the superannuation system was actually introduced to keep wages growth low in the 1980s.
"Since then it's been very clear that higher superannuation has come at the expense of wages," he said.
Mr Coates said the Henry Tax Review had also come to this conclusion and there was evidence of this in 2013 when the Fair Work Commission approved a smaller rise to the minimum wage when compulsory super contributions rose from 9 per cent to 9.25 per cent.
"Some would argue that history wouldn't repeat itself but that's really hard to square with concerns about weak bargaining powers being behind the lack of wages growth," Mr Coates said.
He said he couldn't see why employers who weren't willing to give workers a pay rise today would agree to one in the future when they also have to make extra contributions to super funds.
Some might think that saving for the future is still better than getting the money now but this may not actually be the case.
WE COULD BE $30,000 WORSE OFF
The benefit of having the extra 12 per cent at retirement may not be as significant as you think.
Grattan's analysis suggests a 30-year-old worker earning $58,000 today would lose about 2.5 per cent in wages each year, yet the benefit to their retirement income would be less than 1 per cent.
As a result, their lifetime income would be almost 1 per cent lower - or about $30,000.
In fact the analysis suggests middle-income earners would be no better off in retirement if the 12 per cent superannuation change goes ahead. It will also make them poorer during the years they are working and poorer over their entire lives.
This is because the extra superannuation contributions would be offset by lower pension payments, as higher super balances mean some will be ineligible for a pension or will get lower payments.
Pension payments themselves would also likely be 12 per cent lower because the amount people get is set according to how much wages are. If wages are lower thanks to extra super payments then pension payments will be too.
In fact the biggest winners will be rich people (the top 20 per cent of wage earners) because they are unlikely to receive the pension anyway but also benefit from the lower 15 per cent tax rate the government sets for superannuation.
WE'RE ALREADY SORTED
The Grattan Institute also believes most Australians are already putting enough money into super to enjoy a better standard of living in retirement than they currently enjoy.
Previous research has found retirees are more comfortable financially than any other group of Australians because super contributions, combined with the pension, provide them with enough money.
Even the poorest Australians will receive a financial boost when they retire because the age pension will give them a higher income than what they are getting now after tax.
Ironically bumping super up to 12 per cent would also not save the government any money, it would actually cost it money.
This is because the government would have to pay up to $2.5 billion more on superannuation tax breaks for mostly high-income earners.
"Those extra super tax breaks would dwarf any budget savings on the age pension until about 2060," Mr Coates said.
At this point the government would start saving money on its pension costs but it would still take another 80 years for the government to recover all the money it had spent on providing tax breaks and other costs.
"We would not be ahead until the year 2100, that's what's so crazy about this system.
"Higher compulsory super might be justified if it mean lower pension spending but it actually costs more in the short and the long term."