Every Australian worker deserves a great retirement. Not an average retirement, but a really great retirement.
And that is exactly what the scheduled increase in superannuation contributions will work towards for every worker.
Government legislation will see super guarantee contributions – the amount of super an employer pays their employees on top of wages – rise from 9.5 per cent up to 12 per cent by 2025.
The increases begin from July and are set to make a huge difference between a retirement spent scraping by on the pension and a retirement spent enjoying all the rewards a working life is due.
But if history repeats itself, the super increases could be under threat.
In 2014, the Coalition dumped the super guarantee increases which were originally planned to begin that year and promised workers they would receive wage increases instead.
Yet an Industry Super Australia analysis of 8370 enterprise bargaining agreements show the promised wages boost never transpired.
Delays to super guarantee increases have already cost workers on the cusp of retirement about $100,000, further research shows.
Claims of a wage increase in place of a super guarantee rise are being repeated this year by some politicians who contend wage growth is on the cards for 2021.
However, it is highly unlikely wages will lift this year, thanks to the economic impacts of the pandemic.
In fact, economists predict Australian wages may not increase in real terms for another five years thanks to the “coronacession”.
“When the super rate was last delayed in 2014 there was no resulting wage rise, and millions of workers’ pay packets were cut,” said Industry Super Australia chief executive Bernie Dean.
“Politicians couldn’t wave a magic wand to increase wages then, and they don’t have a wand now.”
The incredibly low possibility of wage growth underlines the importance of the legislated super guarantee increase, particularly with the 0.5 per cent lift scheduled this year.
It may be the only pay rise on offer for Australian workers this year and into the foreseeable future.
“These small, staged increases are affordable for employers and the key to giving people more choice about when they can stop work and have control over their life in retirement,” Mr Dean said.
Find out more about the super guarantee going up.
The assumptions used to estimate the potential impact of changes to the Superannuation Guarantee are, in our opinion, reasonable for the purposes of working out the estimates. The assumptions are based on objective evidence on long-term net returns, fees, relevant economic forecasts and analysis on wages, prices and productivity.
- This model works for accumulation funds only. It will not work for defined benefit funds.
- This model does not allow self-employed people to project their retirement balance
- Outcomes are based on contributions being made annually, at the mid-year point, on your fees being deducted annually and your investment returns being credited to your account annually
- We assume that your super is invested in a balanced option
- Superannuation Guarantee Contribution is currently 10% of ordinary time earnings and is presently legislated to incrementally increase to 12% by 2025
- The LISTO applies from 1 July 2017
- No tax is payable on fees
- We assume that you have provided your Tax File Number to your superannuation fund
- All amounts are in today's dollars, which means they are adjusted for inflation
- The assumed salary increase of 3% per annum has been adopted as an average figure based on a 37-year projection — that is, from the age of 30 to the retirement age of 67
- We assume that an annual inflation rate of 2%. In addition, a further annual increase of 1% is included to take into account the cost of meeting increases in community living standards. This means a total assumed inflation rate of 3% is allowed for. Employer and voluntary contributions, fees and the concessional contribution cap increase with inflation.
- We assume that you will satisfy the Work test at older ages and so are able to contribute to superannuation
- We assume that when you exceed the concessional contributions cap ($27,500 in 2021/22), you pay contributions tax according to your adjusted taxable income on any additional superannuation contributions
- Assumes retirement at the preservation age of 67
Your retirement outcome will be affected by many things including the amount of contributions you make, fees, investment returns and regulatory changes. Some factors that may affect your retirement outcomes may not have been taken into account.
Outcome is based on your contributions being made annually, at the mid-year point, on your fees being deducted annually and your investment returns being credited to your account annually.
This is a Model, not a Prediction
The tool is not intended to be relied upon for the purposes of making a financial decision. Consider a fund’s PDS and your objectives, financial situation and needs, which are not accounted for in this information before making an investment decision. You are responsible for your own investment decisions and should obtain specific, individual advice from a financial services licensee before making any financial decisions.
See www.industrysuper.com/assumptions for more details about modelling calculations and assumptions. Consider a fund’s Product Disclosure Statement (PDS) and your personal financial situation, needs or objectives, which are not accounted for in this information, before making an investment decision. This article was first published by The New Daily on 18 February 2021. The information referred to may change from the date of publication and care should be taken when relying on such information. Both The New Daily and Industry Super Australia are wholly owned subsidiaries of Industry Super Holdings.