Shaky premise behind 3 per cent promise

A superannuation guarantee of 9 per cent is not enough to fund the retirements of those living into their 90s. The superannuation guarantee needs to rise to 12 per cent. That is the number widely regarded as the minimum needed if most people are to save enough for a comfortable retirement.

A superannuation guarantee of 9 per cent is not enough to fund the retirements of those living into their 90s. The superannuation guarantee needs to rise to 12 per cent. That is the number widely regarded as the minimum needed if most people are to save enough for a comfortable retirement.

The federal Labor government is promising a gradual rise in the superannuation guarantee from 9 per cent of salary now to 12 per cent from July 1, 2019. But the Coalition says if it wins government on September 14, it will delay the increase to the full 12 per cent by two years; to reach 12 per cent in 2021 instead of 2019. Note that it is only a "delay" in getting to the full 12 per cent, not its abandonment.

The government says that under its timetable for getting to the 12 per cent, a 30-year-old worker on a full-time average wage (who makes no extra contributions and retires at 67) would have an extra $127,000 by the time he or she retires. But under the Coalition's plan for a two year delay this would fall to $107,000; though details of the calculations have not been made available.

The Coalition says the government's calculation is too simplistic. The superannuation guarantee's history is that it is paid by employers in return for some of the pay rises employees could have expected otherwise. And so, perhaps it follows that remuneration not given to employees by way of superannuation will be given to them through higher wages. But does it?

That was the case in the days of wage bargaining in the Hawke-Keating years. After all, that is how compulsory superannuation came about in the first place in 1992. But in a non-centralised wage system as we have now, you would have to think that would be less likely.

The two-year delay is neither here nor there for those who have most of their working lives ahead of them. And for anyone aged in their 50s or over, the gradual rise in the superannuation guarantee is not going to make much difference to their standard of living in retirement. The delay matters most for those in the middle of their working lives. But the bigger risk for these people, and younger workers, is if the superannuation guarantee never makes it to 12 per cent.

Larger businesses will be funding the Coalition's generous parental-leave scheme through a levy. Coalition leader Tony Abbott would struggle to walk away from the paid parental scheme. It appears to be a "core" promise. He has shut down internal debate on it a couple of times. The rise in the superannuation guarantee is another matter, and probably not a core promise.

The extra two years, before the superannuation guarantee rises to 12 per cent, gives ample time for the Coalition to back-track on its promise. The uncertainty over the level of the superannuation guarantee is not going to go away. Even with the unlikely return of a Labor government, getting to a 12 per cent contribution is far from a forgone conclusion.

All this uncertainly just strengthens the argument that responsibility for a comfortable retirement cannot really be outsourced to anybody else, particularly to government.

The best strategy for ensuing a comfortable retirement is for those who can possibly afford it to start salary-sacrificing 3 per cent of their pay into super in addition to the 9 per cent.

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