Ever since the Government did its deal with the Palmer United Party to get the repeal of the Mineral Resource Rent Tax (mining tax) through the Senate, the media has been awash with commentary on the effect the freezing of the increase in superannuation guarantee (SG) contributions at the current rate of 9.5% for seven years will have on Australians.
However, is it time to rethink the place SG has in retirement savings?
Is this too harsh?
When the mining tax legislation was first introduced by the previous government, the tax was to be used to fund a number of initiatives including the school kids’ bonus, the low income superannuation contribution and a progressive increase in SG rate.
Now that the mining tax has finally been repealed, the increase in the SG contribution rate is to be frozen at current rate of 9.5% until 30 June 2021, following which it will progressively increase to 12% in 0.5% increments.
Commentary has been rife around the impact this delay will have on the retirement savings of ordinary Australians. Figures of around $40,000 less super seem commonplace. For many Australians, this is significant.
Are employers responsible for their employees’ retirement savings?
Compulsory superannuation has enabled the majority of Australian workers to participate in one of the world’s leading retirement savings regimes. Even since the award-based superannuation was introduced in the mid-1980s, which then morphed into the SG system in 1992, the superannuation participation rate has increased significantly. In spite of this, many remain disengaged.
The sad by-product of this is an attitude that many believe their employers (and the Government through the age pension) are the ones responsible for funding their retirement.
Clearly, SG contributions, even when coupled with a part or full age pension, will not be anywhere near adequate to provide most Australians with the type of retirement lifestyle they would like to become accustomed to. This shortfall, often referred to the retirement savings gap, is something we just don’t want to think about.
What’s the solution?
The deferral in the increase in SG rates should come as a wake-up call for Australian workers. It is time for each of us to start to take responsibility for our own retirement planning, no matter how old (or young) we are.
Setting aside a small portion of each pay and making additional contributions to superannuation, either as pre-tax contributions under a salary sacrifice arrangement, or post tax non-concessional contributions, should become part of a regular savings commitment. Sacrificing an additional 3%, 4% or 5% of salary to super now could make the world of difference to retirement savings over a working life. Subsequent increases in the SG rate then become a “bonus”.
While the freezing of the SG rate at 9.5% is irritating, it should not result in the retirement savings of each Australian suffering. For those of us who are employees, we need to take some personal responsibility for our own financial future by contributing just a little extra to superannuation on an ongoing basis. That extra percentage of salary paid into super now could be the difference between sausages and steak on the barbeque in retirement.11