The Government has reached agreement with the Palmer United Party in the Senate, will put the current superannuation guarantee (SG) levy at 9.5% on hold until to 30 June 2021, when it will increase by 0.5 percentage points until it reaches 12% in 2025. It reverses the Government’s announcement, made in the May Budget, to freeze the SG at 9.5% until 30 June 2018, and on 1 July 2018 to resume increasing it by 0.5% increments until reaching 12% in 2022-23.
Paul Keating, one of the architects of the original legislation, has been strongly critical. It is part of the increasing politicisation of superannuation.
The big problem is that 9.5% will not really be enough for most people's retirement, especially older workers. It strongly suggests that salary sacrifice is a good idea. After all, this is only the withdrawal of the mandated levy. Superannuants can still put in more if they wish.
Fund managers are complaining, although they of course do have a vested interest. The AFR reports:
"The chief investment officer of one of Australia’s largest and fastest growing superannuation funds, HOSTPLUS, has added his voice to the chorus of disappointment at this week’s Senate deal to push out the hike in compulsory super contributions from 9 per cent to 12 per cent till 2025.
“It is a very disappointing decision for all Australians that will disproprotionately disadvantage lower income earners,” HOSTPLUS chief investment officer Sam Sicilia said.
“Providing citizens with a dignified retirement is the primary objective of the superannuation system but the current compulsory savings rate will leave most people with a balance at the end of their working life that is grossly inadequate.”
Modelling done by Industry Super Australia shows that delaying the introduction of 12 per cent compulsory contributions from 2019 out to 2025 means somebody who is 25 years old today is, on average, set to be $100,000 worse off at the time they retire."
Some of those vested interests are very large indeed. Many of our super funds are big players by world standards:
Andrea Slattery, head of SPAA argues that the decision highlights an urgent need to have an informed debate about measuring the long-term budget cost of superannuation and what is considered an adequate income for retirement, especially when it’s considered that people are now living, on average, into their mid-80s.
She says it is crucial that major superannuation policy decisions be removed from the annual budget cycle and instead be subjected to a five-year review as part of the intergenerational report. "The Government’s decision to make this short-term fiscal decision came at the expense of the long-term retirement goals of the Australian people.
“By linking the abolition of the mining tax with the decision to freeze the SG for seven years, the Government is again demonstrating that dipping into the superannuation ‘piggy bank’ is always an option when difficult fiscal decisions have to be made. This decision only works to undermine the public’s confidence in the superannuation system that’s the key plank to their long-term retirement planning,” she says.