When the government wants to cut back the massive tax concessions the rich receive on their superannuation, the media is full of it for weeks. Ask the rich to pay a bit more and there’s hell to pay. But I bet no one’s bothered to tell you of something that’s about to affect the super of every worker in the country.
Why no mention? Because there’s no shootfight. It’s only when people are boxing it out that the media take an interest. And it seems like it’s good news, not bad. Apparently, there are winners, but no losers. Is that possible? Of course not.
The workers think someone else is paying, but that someone else – the bosses – know they’re not. So, no fight, no story.
What is this thing no one thinks we need to be told about? It’s that from the first day of next month, your employer’s compulsory contribution to your super will be increased by 0.5 percentage points to 12 per cent of your wage.
For the past 12 years, the government has been steadily increasing the contribution rate from 9 per cent to 12 per cent, where it will stay. Surely that’s good news? Well, maybe.
On its face, the government is forcing employers to make a greater contribution to the retirement savings of their workers. But if that’s all there is to it, why haven’t businesses been bitching about it unceasingly, warning that it was discouraging them from employing more people and killing the economy? Because business knows it’s not paying the impost.
In theory, there are three things that could follow: the business bears the cost in the form of lower profits, or it passes the cost on to its customers via higher prices, or it passes the cost back to its employees via pay rises which are that much lower than they otherwise would have been.
(Actually, there’s a fourth possibility: a bit each of two or three of the possibilities.)
Economists have long believed that the cost is passed back to the workers. And empirical studies have confirmed this. A study by one of the great experts in this area, the Grattan Institute’s Brendan Coates, has found that, on average, about 80 per cent of the cost is passed back to employees over the following couple of years. (Which raises an interesting point. Few if any commentators – including me – have thought to point out that some part of the cost-of-living pain working families have felt in the post-COVID period is explained by the government indirectly requiring them to increase their saving for retirement, thus leaving them with less to spend.)
Between July 2021 and today, employees’ super contribution has been increased by 2 per cent of their pre-tax wage. In three weeks’ time, that will increase to 2.5 per cent. Of course, you’ll get that money back, with interest, but not until you retire.
For years, many people have worried that they aren’t saving enough to live comfortably in retirement. And for years, the banks and fund managers that make their living looking after your super fund savings – which they do by taking a seemingly tiny percentage of your accumulated savings each year – have given people an exaggerated impression of the size of the lump sum they’ll need to have on retirement to be comfortable, in the hope that people will add their own contributions to their employer’s contributions, thus adding to the fund managers’ fees.
The worriers should remember this: Compulsory employer contribution started in 1992, at 3 per cent of wages. This was gradually increased to 9 per cent in 2002. As we’ve seen, between 2013 and next month, it will have gradually increased to 12 per cent.
Get it? For older people, the more of their working years that have been in this century, the less cause they have to worry about not having enough. And for younger people, the more of their likely total of 45 years working that are ahead of them, the more the risk of not having enough should be the furthest thing from their minds.
Remember that the less you have in super, the more help you’ll get from the age pension. But the more super you have, the less eligible you’ll be for a part pension. It oughtn’t to be too long before it’s rare for people to retire on a full pension, and common for people to have so much super their eligibility for a pension is wiped out.
The big qualification to all that, however, is whether you own your home. Life can be a lot tougher for those retirees dependent on renting in the private market. Pensioners who rent get some assistance from the government – and more than they used to – but it can still be a struggle.
Remember, too, that it’s easy for a person still working to overestimate how much they’ll need to live comfortably in retirement. They’ll be paying far less, if any, income tax. They won’t be putting money into their super. They won’t have dependent kids.
They’ll go on a few overseas trips – and then they’ll decide they can’t be bothered going on another. The older you get, the less you want to run around doing expensive things. Coates’ research confirms that many retirees end up saving rather than spending all their retirement income.
The more pertinent question is whether some young person who spends all or most of their working years getting annual contributions of 12 per cent will retire with far more than they need to live comfortably – whether they’ll end up living like kings (if they have the energy).
So here’s the bad news: once you accept that workers actually pay for their employer contributions by receiving smaller pay rises over their working years, will they be forced to exchange a lower living standard while they’re working for more money than they want to spend in retirement?
