Delayed or Opt-In Super to Cripple Retirement

  • 1 February 2021

The superannuation guarantee is set to increase in July this year from 9.5 per cent to 10 per cent for Australian workers however the federal government is exploring alternatives to alter or further delay the legislated increases.  The original timetable has already been delayed since July 2014 when former prime minister Tony Abbott promised at the time a freeze would produce stronger wages, but wage growth immediately slowed.  Increasing the super guarantee to 12 per cent was a Coalition and Labor election commitment in 2019 with the 9.5 per cent guarantee scheduled to rise to 12 per cent by 2025.  Now the federal government is citing Covid as a reason for a rethink acknowledging weak wages are a problem for the economy but pledging to act, not by increasing the minimum wage, but by delaying the legislated increases in the superannuation guarantee (SG) or to make those increases ‘voluntary’.

Wage growth in Australia was already in the dumps before Covid with increases averaging just 2 per cent per year since 2015, the weakest since the Second World War, and then the pandemic brought wages to an utter standstill.

The super guarantee is scheduled to rise by 0.50% each financial year:

Period    General super guarantee (%)
1 July 2021 – 30 June 2022    10.00
1 July 2022 – 30 June 2023    10.50
1 July 2023 – 30 June 2024    11.00
1 July 2024 – 30 June 2025    11.50
1 July 2025 – 30 June 2026    12.00
Source: ATO

With the prospect of a Federal election as early as August, some Coalition MPs are pushing for no increase in the super guarantee with reports circulating that the federal government is torn, with a new model now being considered for the superannuation system which could see workers opt into super.

Superannuation Minister Jane Hume recently blamed the super system for dismal wage growth however according to research by the Australia Institute it’s the contrary, with higher superannuation often being associated with stronger wage growth (as in the late 1990s and early 2000s)

There’s no evidence that reducing super, or making it voluntary, will deliver the wage growth Australians need, says economist Jim Stanford from the Centre for Future Work at the Australia Institute.

Former Prime Minister Paul Keating accused parliamentarians opposing the rise of hypocrisy.  “Parliamentarians are paying themselves 15.6 per cent, having already delayed the original legislated increases to workers super.”  "This is grand theft Liberal Party style."

Jim Stanford argues that asking workers to give up super to lift their own wages adds insult to injury.  Clearly, in the current economic and political climate, workers would get neither super nor a wage increase.  Worse yet, by breaking from the core principle of compulsory employer-funded superannuation, the government’s opt-in proposal opens the door to the complete dismantling of the system as we know it.  And for some members of the Coalition, that is exactly the point.

Labor joined with the ACTU back in 1983 in seeking a universal 3% superannuation contribution by employers to be paid into an industry fund, in lieu of a wage rise.  Accord Mk II between the Government and the unions stipulated that compensation to employees should be 6% (to keep pace with inflation) made up of a 3% employer superannuation contribution, a 2% wage rise, and tax cuts.  The Agreement was endorsed by the Conciliation and Arbitration Commission in February 1986 and challenged, unsuccessfully to the High Court by Employer groups, and by June 1995, 80.5 % of employed persons were covered by superannuation.

One of the federal government's earliest responses to the pandemic was to expand early access to super however the early withdrawal scheme has only entrenched inequality between Australian generations.  Australians are expected to have pulled $42 billion from their own super accounts by the end of last year.  The scheme has seen 590,000 Australians estimated to have completely cleaned out their retirement savings, the majority of them under the age of 35 with the billions withdrawn dwarfing the support the Federal Government has injected into the economy during Covid through its JobKeeper program.

Early access was a very large economic stimulus measure that's coming from the savings accounts, the super accounts, of young people and lower-paid workers in the economy and that stimulus should have been publicly funded.  If JobKeeper had just been extended to cover more of the work force, then the scheme may have been avoided. 

The federal government would need three crossbench votes in the Senate to overturn existing legislation and stop the super guarantee increase from going ahead.