Analyst suggests two-tier super

PEOPLE aged under 50 need protection from the proposed increase in superannuation contributions because many are under financial stress, a leading policy analyst says.

By InvestSMART · 9 Jan 2012

By InvestSMART ·
9 Jan 2012

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PEOPLE aged under 50 need protection from the proposed increase in superannuation contributions because many are under financial stress, a leading policy analyst says.

Bruce Bradbury, a senior research fellow in the Social Policy Research Centre, the University of New South Wales, said younger Australians should be able to take back the compulsory 3 per cent increase in the Superannuation Guarantee to spend on what they needed.

"The point of superannuation is to help us move resources to the retirement years when our income is low," he said. "But the policy doesn't take into account the other stages in life when people also have high needs, typically when they're buying a house and having children."

The federal government plans to gradually raise the contribution employers make to employee superannuation from 9 per cent to 12 per cent. Many academic analysts believe this will be at the expense of future wage increases.

Calculations by Dr Bradbury based on Australian Bureau of Statistics data show younger people are much more likely than the over 50s to struggle to pay bills and to save.

For example, 20 per cent of people aged under 30 could not pay a telephone, electricity or gas bill on time in the past year, and 17 per cent in their early to mid-40s also had fallen behind. But the proportion of late payers fell steeply after the mid-40s to less than 5 per cent among the 65 and older group.

In his analysis, Saving the young from superannuation, Dr Bradbury shows people in their 30s and 40s save on average only 2 per cent of their income while people in their 50s and early 60s save 10 per cent. People aged 35 to 39 actually spend more than their income.

"In their 30s and 40s people are taking time off work to care for children and they're buying a house," he said. "By the time they get into their 50s and early 60s, they have surplus cash."

Dr Bradbury said it was not practical to reduce the contribution rate for younger people. Since employer contributions were effectively incorporated into wages, this would mean different wage rates for different employees. However, one option would allow super payouts for younger people for prescribed uses, or allow them to "take the 3 per cent out and make their own decisions".

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Frequently Asked Questions about this Article…

What is the proposed Superannuation Guarantee increase and who would it affect?

The federal government plans to gradually raise employer superannuation contributions (the Superannuation Guarantee) from 9% to 12%. This change affects employees across the workforce, but policy analysts in the article highlight that younger Australians (those under about 50) are likely to feel the impact most because many are under financial stress.

Why do analysts say younger Australians need protection from the superannuation increase?

Bruce Bradbury, a senior policy analyst, argues younger people need protection because many in their 20s, 30s and 40s face high costs—buying a house, raising children or taking time off work—which reduces their ability to pay bills and save. The article cites ABS-based analysis showing younger groups are more likely to struggle with bills and have lower saving rates than people in their 50s and 60s.

How could the 3% rise in employer contributions affect future wage growth?

The article notes that many academic analysts believe raising employer super contributions to 12% will likely come at the expense of future wage increases, because employer super contributions are effectively part of total labour costs and have been incorporated into wages over time.

What do the ABS-based numbers in the article say about younger people’s bill-paying and saving habits?

Using Australian Bureau of Statistics data, the analysis found about 20% of people under 30 had trouble paying a phone, electricity or gas bill on time in the past year, and around 17% in their early to mid-40s had fallen behind. Late payments drop sharply after the mid-40s to under 5% for those 65 and older. In terms of saving, people in their 30s and 40s saved on average about 2% of income, while people in their 50s and early 60s saved about 10%; those aged 35–39 actually spent more than their income on average.

Why isn’t it practical to reduce contribution rates specifically for younger workers?

Bradbury says it isn’t practical to set lower employer contribution rates for younger workers because super contributions have been effectively incorporated into wages. That would mean different wage rates for different employees, which is not a straightforward or practical approach.

What policy options did the analyst suggest for helping younger people with the extra 3%?

One option Bradbury suggested is allowing younger people to access the additional 3% of contributions for prescribed uses (temporary access for specific needs). Another option he mentioned is letting younger workers 'take the 3% out and make their own decisions' about that portion of contributions.

What is the main trade-off highlighted about increasing superannuation contributions for younger workers?

The key trade-off in the article is between boosting retirement savings (moving resources to the retirement years) and meeting high financial needs during earlier life stages. The policy may strengthen retirement balances but could reduce take-home pay or wage growth and make meeting current expenses harder for younger people.

How can younger everyday investors follow this debate about superannuation changes?

The article points to public-policy discussion led by analysts like Bruce Bradbury, who use ABS data and research to highlight issues. Younger investors can follow updates from government announcements and policy analysts, and watch for proposed measures such as prescribed-use withdrawals or other protections that may be introduced in response to concerns about the 3% increase.