Superannuation Guarantee delay will not leave workers worse off

Speaking in parliament last week, the Leader of the Opposition asked the Prime Minister if he could ‘confirm that for an average income earner – aged 25 – that his decision to freeze the superannuation guarantee will cost that person $100,000 by the time they retire.’ This assertion is incorrect.

Under current policy the minimum percentage of an employee’s remuneration that must be placed into a superannuation account – the Superannuation Guarantee (SG) rate – is 9.5%. This was set to increase by 0.5% each financial year until it reached 12% in 2019-20.

As part of a deal struck with the cross-benches to secure the repeal of the Minerals Resource Rent Tax the government will now delay these increases until 2021-22 so that the SG rate reaches 12% in 2025-26.

Far from costing workers money, most workers will instead receive the superannuation forgone as higher levels of take-home pay. Superannuation is not money that comes from the government. It might be collected by employers but it comes from the wages of workers.

The government’s decision to delay these increases will allow workers to choose how they wish to spend more of their own money. As noted by Finance Minister Senator Mathias Cormann ‘it will leave Australian workers with more money pre-retirement, which they can spend on paying down their mortgage, spending on other matters or saving for their retirement though superannuation as they see fit.’ There is nothing in the SG rate freeze that prevents individuals from contributing an additional 2.5% into their superannuation accounts right now.

The impact of superannuation guarantee increases on the rates of dependency on the age pension should not be overstated. Even in the absence of government’s temporary freeze on the SG rate modelling cited by the National Commission of Audit forecasted that by 2047 four in five Australians of age pension age will still be receiving the age pension – even if some will move to a part-pension.

There are far more important reforms to retirement incomes policy that remain undone.

Matthew Taylor is a research fellow at The Centre for Independent Studies.