How your super became next COVID battleground
Australian workers are being asked if they want more pay now – or more money when they retire.
The Federal Government has legislated that the Superannuation Guarantee increase gradually from 9.5 percent today to 12 percent by 2025, but already senior members of the Government are thinking aloud, and saying it might not be such a good idea.
Senator Jane Hume, the Assistant Minister for Superannuation, added to the debate this week when she said the super increases will flatten wage increases for the next five years.
“People need to understand there is a trade-off,” said Ms Hume. “If their wages don’t go up over the next five years and they are wondering why, you can say: ‘Well actually, your Super Guarantee has gone up.’”
The argument against raising super is that employers are under pressure as never before and only have a limited supply of funds.
If they put more money into super, that leaves less for wage increases at a time when many workers are also struggling.
Wages growth is already at its lowest level in two decades: recent data from the Australian Bureau of Statistics shows that wages are increasing at a meagre 1.8 percent per year.
The emergency measures by which people can access up to $20,000 of their superannuation have also proved popular.
Around 2.8 million Australians have withdrawn money from their super, with total withdrawals from the system now at more than $30 million, with $40 billion expected by Christmas.
So, with many people under such financial stress and business facing big challenges, there is a view that Australia just can’t afford a higher Super Guarantee right now.
As with everything involving superannuation, the arguments are highly charged and political.
One the one side, the Australian Council of Trade Unions says freezing super at the current 9.5 percent could cost a 30 year old nurse $121,000 by retirement, and $60,000 for a 30 year old cleaner.
Other analysis, by AlphaBeta, claims that almost 40 percent of people who withdrew super had not experienced a decline in income, while two-thirds of the money withdrawn has been spend on non-essentials.
The man considered the architect of superannuation, former Prime Minister Paul Keating, has been typically blunt, strongly criticizing the early access scheme and any suggestion of freezing the guarantee.
But others are not so sure. Reserve Bank Governor Philip Lowe doesn’t usually wade into politics, but told a Parliamentary committee last week that lifting the guarantee would “certainly have a negative effect on wages growth.”
There is also different economic modeling out there to that put forward by the ACTU.
The University of Melbourne’s Grattan Institute, for example, cites the example of a 35 year old who took out the full $20,000 under early super access.
While this person would see their total super income fall by around $80,000, this would only equate to $24,000 in today’s dollars, or around $900 a year, because their financial situation would trigger higher pensions.
For the ordinary person in the street, the decision might be more basic and motivated more by their current financial position.
Can they afford to forgo a wage rise in the expectation of having more in retirement?
If the answer is no, and they need the money now, you can be sure there will be pressure on employers to lift wages if – as could be likely – the Government backtracks and freezes the Super Guarantee.