Your Superannuation Is About to Increase with A Catch

You will earn more super, but don’t be too happy.

These days, we have been seeing adverts promising us more super. They are everywhere, from television to the internet. But while they promise more super, none of them tells us where the super will come from.

Thus, while the idea of more Super is exciting, the increase in compulsory super contributions is so right that will have to be considered because it will definitely be part of the wages.

Thus, these ads practically seem like those ones where buyers are promised free accessories that will come with the mobile phone. But in reality, these accessories are paid for by the buyer through purchase price.

When Paul Keating, the prime minister who made superannuation compulsory in 1992 was talking about it in 2007, he said that employers were never the one bearing the cost of superannuation, but it was instead absorbed into the wage cost.

Reviews of studies on the issue say otherwise. Evidence from these studies shows that most super guarantee increases usually affect growth in wages.

These ads started the campaign to influence the government to live up to its 0.5 per cent legislated annual increases which will see compulsory Super go from 9.5% to 12% in five years.

The risks

Asking workers to drop an extra 0.5% of their salary, which will reach up to 2.5% in five years is, without doubt, asking a lot at any time. But at the present time and with the effects of Covid-19, it is even more difficult for both employers and employees.

The employer currently has two choices. It could decide to take the extra 0.5% till it gets to 2.5% off the annual wage increases of the employee over the next five years. This way, it will pay exactly how much it is meant to pay.

The other options are for the employer to pay the extra percentages from its profits without affecting the wage increase or increase its prices so it can make more profit or reduce its wage bill by letting some staff go.

We might be saving too much already

The obsession with savings in our society is a serious one, and it is what informed this need to increase the super. But given the downsides of these savings, it might not be worth it after all, especially if it is not needed. The November retirement income review shows that we don’t need more super.

The High earners already have enough saved for retirement both outside the Super and inside. They want the tax benefits offered by super so contribute much more than what is necessary.

For low earners, what they earn while working is so low that the pension, super, and private savings they get when they retire is as much or even more than what they made while funding, although part of it was funded by their wages while working.