Perks of a superannuation climb
The Australian Institute of Superannuation Trustees (AIST) recently declared that for working Australians to achieve a dignified standard of living in retirement, increasing super to 12 per cent is a must.
AIST CEO Eva Scheerlinck said Australians living longer in retirement; the changing nature of work; rising aged care and health costs and declining home ownership rates in retirement were key reasons why ordinary working Australians would need the 2.5 per cent super increase to retire “with dignity”.
Ms Scheerlinck said leaving super at 9.5 per cent – the current guarantee – would consign low income workers – as well as millions of women and men with broken work patterns – to financial hardship in retirement. It would also lead to more Australians needing to rely on the age pension.
But while a super increase has its benefits, extra pension income as opposed to a boost in super could potentially have a longer-lasting effect on retirees.
There are too many variables to suggest moving the guaranteed superannuation rate in Australia to 12 per cent would be vital as “nothing can ensure that all working Australians will accumulate sufficient super to fund their retirement”, according to Potts and Schnelle’s Paul Schnelle.
“I think an increase in age pension rates is much more beneficial to retirees who are in need of income support,” Mr Schnelle told The Free Press.
Mr Schnelle said which of the two financial benefits would be better solely depends on the personal circumstance of the individual.
“Most employees who have commenced work in the last 10 to 15 years will not be entitled to an age pension in retirement because they will most likely accumulate enough super through SGC (Super Guarantee Charge) during their working life to result in them exceeding the assets test, meaning an increase in SGC is better for them,” he said.
“An SGC increase is really just the employee’s own salary sacrifice that they’re getting back.
“I recently saw a presentation that calculated that if a couple receives the full age pension at today’s rate’s for their life expectancy, they will receive approximately $800,000,” the Corowa accountant added.
Ms Scheerlink said it’s unfair for low income earners and women in unpaid work caring for children or other family members to suffer financial stress in retirement.
“We can do better,” she said.
The report by Grattan Institute found that more people were retiring with mortgage debt.
“It doesn’t surprise me,” Mr Schnelle said. “We see a lot of baby boomers who have used their home mortgage to finance lifestyle choices without considering how those choices will be paid for in the long-term.
“Or, alternatively, they plan to pay off the mortgage with their superannuation and then plan to live on the age pension, which currently is around $36,000pa. If one of them passes away, it drops to around $24,000 for the survivor. That doesn’t leave much once you’ve paid for your electricity, groceries and petrol.”
Members of the Corowa Community Men’s Shed said they wish super was compulsory during their working days as it would certainly have lifted a financial burden off the shoulders of those who had to “do it on their own”.
“It really just depends on everyone’s circumstance. If you’re still paying a house off then you’re in dire straits, living, but you’d only be just living,” one member of the Shed said.
“It’s alright in the age pension, but those living off a super income would benefit majorly. If you manage it correctly you can actually live off your super and pension pretty well.
“Paying off mortgages though you just couldn’t do it. If you started at 20 years of age and had stable relationships you can do it easy.”
Mr Schnelle said over a 50-year working life, the 2.5 per cent SGC increase results in around 25 per cent increase in the amount of superannuation accumulated.
Simply earning a larger amount of super during your working life at face value is an exciting prospect, but like with all things, where there’s a positive there’s a negative.
“The major con is that any increase in compulsory super is usually offset, at least in part, by a corresponding reduction in any applicable wage increases negotiated at the same or similar time,” Mr Schnelle explained.
“So, effectively, the SGC increase is really just a legislated salary sacrifice into super, rather than an actual wage rise for employees.”
Mr Schnelle advises people to take an interest in their superannuation.
“Review the fees that you are paying and ensure that you are getting value for money. The cheapest is not always the best and I recommend that you invest in some professional advice at an early stage,” he said.
“For young people, save as much as you can early on and let the power of compound interest do the job for you. There is plenty of time later in life to buy a better car and/or upgrade your accommodation.
“An extra $20 a week for just 12 months ($1,040) contributed at age 18 can represent up to an extra $100,000 upon retirement if invested well.”
Under new laws passed by the Liberal Party, the SG will now not reach 12 per cent until July 2025 (start of the 2025/2026 year), another seven years from what was set out in the previous laws.
The current SG is currently 9.5 per cent and will rise to 10 per cent in 2021.
Corowa High School student Gabby Sutcliffe has been the talk of the town recently after being selected in NSW Country’s Under 18 cricket squad and also receiving a prestigious Victor Chang School Science Award. She is currently holding her own in Corowa’s A Grade cricket team.
The superannuation guarantee is set to jump in the upcoming years.