Compulsory super not the only answer

Millions of ordinary Australians will not necessarily benefit if our politicians accept the superannuation industry's latest campaign for a bipartisan agreement to increase the compulsory super rate from 9.5 per cent to 12 per cent of salary by 2022. There's only one certain outcome from doing this, namely enhancing industry profits and control of other people's and the nation's future by an already very large funds management industry.

Particularly artificial are the purported calculations of how much money ordinary Australians will lose by not receiving more compulsory super. Among other things, these calculations assume continuing high rates of investment return and no other change to employment conditions or wages.

There are no comparisons of the returns from super with, for example, the returns from other investments, such as paying off a home loan more quickly. The real-life situation is that higher employer costs will make it more difficult for people to obtain and retain their jobs and achieve growth in their living standards.

When more total remuneration is forced to be paid untouchable to a super fund, the amount of after-tax income available to buy a house and bring up and educate a family is reduced. No matter how high super returns are, the harsh situation for younger and middle-aged people is that even in periods of unemployment or retraining, that money is not available to help service a mortgage or meet living expenses. As a result, workers can end up being forced to sell their homes even when they have a large amount in their super fund.

Since 1999, all new contributions to super are tied up until retirement at 60 or later. This may be fine for people with secure and continuing employment, but a growing percentage of the population is not so fortunate.

Although it may be appealing to focus on how much money may be accumulated by contributing to super at an early age, the same calculations apply to achieving home ownership as quickly as possible. Where accumulating super is more important is in middle and even later age, when there's a greater capacity to save and retirement is much closer. Yet successive governments have been making it more difficult for older people to build up their super more quickly.

Despite this, the super industry continues to focus on compulsory super, rather than helping people increase their voluntary contributions. Obviously, if an employer's super payments exceed the compulsory requirements, this is a bonus to be accepted willingly, but salary sacrifice super can be an excellent strategy to build up retirement wealth, especially when the family home is owned outright.

 

Next articles

Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

Read More

Share