Perks of a su­per­an­nu­a­tion climb

The Free Press (Corowa) - - FRONT PAGE - BY JAR­RYD BARCA

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.

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