Super's lost tribe

All the headlines devoted to the superannuation changes – the $1 million contribution opportunity, the tax-free super payments et al – may have created a false impression about the extent and impact of the policy. The harsh reality is that those changes make no difference at all to most baby boomers: they don’t have the funds to take advantage of it and their super payouts would have been too low to attract tax anyway.

And to provide a bit more perspective on the 9% Superannuation Guarantee itself, there are hundreds of thousands of Australian workers who are being quietly robbed of what they think they are receiving.

And for a little more reality, according to no less a source than Peter Costello’s Treasury, in 2050, when the retirees will have had the Super Guarantee all their working lives, only about a quarter of them won’t need the age pension. About a third of those 2050 retirees will still depend on receiving the full pension. So much for really dealing with the retirement challenge

What else can I throw in to sound like a curmudgeon? Oh yes, from July next year the Super Guarantee levy won’t be paid on overtime. Some workers already only get it on their normal hours, depending on their award. So, given some WorkChoices flexibilities about how overtime is paid, it’s possible the true hourly rate for overtime is less than ordinary hours. Nice trick.

The post-budget realities for most retirees – present and future – are indeed a long way from the Treasurer’s glossy salesmanship. Which is why we all need active investment programs.

As a base line, employees need to be sure they are getting the 9% compulsory superannuation to which they are legally entitled. Many do not receive it.

Complaints to the tax office about super are running at a rate of 13,000 a year and the tax office tells me that about 85% of them prove justified: either the employer isn’t paying the 9% at all or isn’t paying the full amount. Given that a complaint from a single worker often represents a workplace with multiple employees, the 13,000 complaints mean the tax office is investigating the super entitlements of about 140,000 people a year, which means that they find about 120,000 Australians a year aren’t getting all their super contributions.

There’s no sure estimate of how much non-payment skates under the tax office radar, but it’s tempting to consider the usual sort of multipliers that apply to reported versus committed crime and come up with a frighteningly large number.

Check with your fund

The first stop for employees is to check with their superannuation fund to make sure they have been paid the 9% Super Guarantee levy – that annual or six-monthly statement from the super fund isn’t just another piece of junk mail.

If the amount doesn’t seem right, the employer should be challenged, but that can be a difficult proposition, especially in smaller workplaces. The next step then is to phone the tax office – 13 10 20 – and complain.

The tax office is a large bureaucracy, but it is bound to investigate every complaint. There are a lot of them, it takes time, and privacy laws mean employees are left in the dark until the investigation is complete. But the job will be done and done anonymously.

What a payslip might say about super contributions really doesn’t matter. The SGL has to be paid on the 28th day after each quarter, like GST. Most of the problems seem to come from employers who are having cash flow problems, so the super doesn’t get paid. By the time employees realise their super fund hasn’t received the payments, often the employer is in deeper financial trouble.

If employers are caught, the tax office enforces payment plus 10% interest and the employer loses the tax deduction they would normally get for the SGL. That’s if they have the money to pay.

Heaven knows – or at least the Treasury knows – employees need all the super payments they can get. In the process of checking the super non-payment story, I stumbled on a 2002 Treasury study which contained the following sobering paragraph:

“Approximately 54% of individuals of Age Pension age currently receive a full rate pension, another 28% receive a part-rate pension, and 18% are not eligible for the Age Pension. By 2050, after the SG system has reached maturity, it is expected that the proportion of people aged 65 and over receiving a full rate pension will fall to around one third, and that the proportion of people not receiving the pension will rise to around 25%. The proportion of people receiving a part-rate pension is expected to increase to around 40%. The Age Pension is therefore likely to remain an important feature of the retirement income framework into the future.”

So even with a lifetime of compulsory superannuation, the percentage of people achieving financial independence in retirement will only increase from the present 18% to 25%. Keep the reform coming.