Superannuation calculator: how would scrapping the planned increase affect you?
The Morrison government’s looming decision on whether to proceed with promised increases in superannuation contributions could have a big effect on the amount of money saved for your retirement.
The superannuation guarantee contribution is legislated to increase from its current rate of 9.5% of income to 12% by 2025 – and the Coalition promised at the last election to stick with that schedule, but is now rethinking it amid the Covid-19 crisis.
Industry Super Australia – which has been campaigning for the government to honour the legislated increases – has produced a calculator to help people see the difference on their retirement savings between freezing at the current rate and allowing it to increase to 12%.
For a 40-year-old worker with an existing super balance of $95,000, freezing the rate at 9.5% could leave that person with about $73,000 less in their retirement, according to a new calculator. That is based on that person currently receiving full-time adult average ordinary time earnings of $89,123 per year.
For someone who is 20 years old on the national minimum wage $39,198 and with no current super balance, they may retire with a super balance about $92,000 lower than it otherwise would be.
The calculator is based on several assumptions, including that a person’s income increases by three percent a year and that their superannuation is invested in a balanced option.
Find out how the change would affect you
The first increase, of 0.5 percentage points, is due in July 2021.
But with the Covid-19 crisis tipping Australia into its first recession in three decades, some within the Coalition and the business community have been pushing the government to put the increases on hold.
The government is considering a retirement incomes review, which was submitted to the prime minister and treasurer in late July but is yet to be publicly released. But Scott Morrison has made it clear the government is rethinking its position on the rises.
This has revived a long-running debate: whether workers would be better off with extra money saved to provide for a comfortable retirement, or the possibility of higher wages now.
The governor of the Reserve Bank of Australia, Philip Lowe, told a parliamentary committee in August that “increases of this form do get offset by lower wage growth over time”.
The Grattan Institute has also raised
concern about the potential effect on wages.
But Stephen Jones, Labor’s shadow assistant treasurer and spokesman on financial services, has warned against buying “this argument that workers are not going to get a wage increase if we freeze superannuation”.
Paul Keating, the architect of compulsory superannuation, also accused Lowe of disregarding “the key income facts of the last eight years” because wage growth has already been stagnant.
The assistant superannuation minister, Jane Hume, has previously told Guardian Australia the legislated increases in compulsory super would be “very difficult to unwind” but it would be “irresponsible” not to consider the wage trade-off.