Move to cut $1630 from Aussies’ savings
Treasurer Josh Frydenberg has opened the door to ripping $1630 a year from the average worker's nest egg by delaying a guaranteed increase to superannuation.
As exclusively revealed by news.com.au in July, a retirement incomes report has warned of a trade off between an increase in the super guarantee and lower wage growth.
The scheduled increase in superannuation, due to increase from 9.5% to 12% by 2025 was taken to the last election but could now be delayed as a result of the COVID-19 pandemic.
Mr Frydenberg said the 600-page report retirement incomes report made clear there was a "trade off " between employers paying for higher super, which means low income workers in particular are less likely to secure wage increases.
"We will make a decision about that in light of current circumstances before the scheduled increase takes place,'' he said.
"I note that this report is one voice and there have been many others in this space including the Governor of the Reserve Bank who has pointed out clearly the trade-off between a person's wages and the superannuation guarantee.
"The key point also to underline here is that we are living in a very different economic environment than we were this time last year. We have been subject, as a nation and a global economy, to a once in a century economic shock with COVID-19."
In recent months, the Treasurer has signalled he might be prepared to delay or defer that increase as a result of the pandemic and concerns it would put downward pressure on wage growth.
"A rate of compulsory superannuation that would result in people having an increase in their living standards in retirement may involve an unacceptable reduction in living standards prior to retirement, particularly for lower-income earners," the report states.
"This is based on the view, supported by the weight of evidence, that increases in the super guarantee rate result in low wages growth, and would affect living standards in working life.
"The weight of evidence suggests the majority of increases in the super guarantee come at the expense of growth in take-home wages. The view is based on empirical research, economic theory, evidence across a number of countries and the original policy intent of superannuation guarantees.
"Increases in the superannuation guarantee rate will increase lifetime government support for higher-income earners by more than lower- and middle-income earners."
In August, Scott Morrison dropped his biggest hint that he is considering dumping the super increase in a move that Labor warns could cost young couples up to $200,000.
But he stressed that he "hoped" it would not be necessary. Mr Morrison said he would make a final decision on the basis of what was the best decision to protect workers' employment in the COVID-19 economy.
"I will do and the government will do what is in the best interests of people getting jobs and staying in jobs,'' he said in August.
"You've got to look at the situation as you find it. The situation today is different to what it was previously. That doesn't necessarily mean you go down that path but you have to deal with the situation as you find it."
Labor has warned the impact on retirement incomes over a lifetime could be as much as $200,000 for a young couple in their 30s today.
In retirement, industry super funds say that would mean losing up to 20 per cent of their income or between $7,000 to $10,000 a year.
Industry Super Australia (ISA) said some of the findings on the legislated super guarantee increase the government selectively released overnight seem ill-founded.
"The review states that super increases are at the expense of wages growth, claiming working life income would be 2 per cent higher if the super rate does not lift, as legislated, from 9.5 per cent to 12 per cent,'' Industry Super Australia Chief Executive Bernie Dean
"The SG increase will boost the average 30-year-old couple's retirement balance by $200,000.
"For many that's the difference between a dignified retirement and one just scraping by."
Homeowners were also found to have better retirement outcomes compared with those who were still renting according to the report, underlining the Morrison Government's support for using super to save for a housing deposit.
"Homeowners also have the opportunity to access the equity in their home to supplement retirement income and manage longevity risk, although few currently do so. If this potential were realised housing would take on an even more important role in the retirement income system," the report states.
"A major misunderstanding is the view that 'retirement income' involves the return from investing superannuation balances, rather than drawing down those balances to fund living standards in retirement."
The Morrison Government has allowed workers to withdraw up to $20,000 from their super accounts if they are in financial distress as a result of COVID-19.
As a result, a 25-year-old who withdrew $20,000 now will lose almost $100,000 in retirement savings by the time they retire.
A 30-year-old would be $79,000 worse off and a 40-year-old would be $55,000 worse off.
Originally published as Move to cut $1630 from Aussies' savings