Failing to increase the superannuation rate would hurt people who have drawn down on their retirement savings during the coronavirus and curb the ability of funds to invest in economic recovery, industry fund leader Greg Combet says.
Combet, who chairs both umbrella body Industry Super Australia and investment vehicle IFM Investors, said people who made withdrawals under Morrison government rules that allowed people affected by the crisis to crack open their super faced a double whammy if a planned increase in employer contributions from 9.5% to 12% was cancelled.
According to Industry Super Australia modelling, if the increase is abandoned, a typical man who draws down the maximum $20,000 allowed under the early release rules will lose $180,000 in retirement savings.
To make up the difference, he would have to work an extra 6.5 years past retirement age, to 73 and a half.
A woman would lose $150,000 and have to work eight years, until she was 75, to make up the difference.
“These are really significant impacts in the longer term for people,” Combet said.
Opponents of the planned increase have drawn on research by thinktank the Grattan Institute that found that about 80% of increases to super paid by employees were clawed back in the form of lower pay rises in the future.
Combet said the argument was “nonsense”.
“A number of the political figures who prosecute this case from time to time, they’ve never supported the superannuation system, and we’ve seen that over many years,” he said.
“It’s pretty familiar, it’s the same argument and the same group of people who trot it out,” he said.
“I’ve never understood why the Liberal party, or some people in it, don’t support a private savings system, where someone is saving for their own retirement in a personal superannuation account.”
When super was first introduced, in the 90s, employer contributions were supposed to ramp up to 15% by the turn of the century.
But after a series of freezes, the super guarantee rate has been stuck at 9.5% since 2014.
Under current legislation, it is supposed to increase by 0.5 percentage points a year, starting next July, until it hits 12% in 2025.
The increase is government policy, but faces opposition from a ginger group of backbenchers and others outside parliament including the Grattan Institute.
Combet said that, due to a freeze in the rate under prime minister John Howard, employer contributions had only gone up 0.5 percentage points in 18 years.
“In that 18 years since the super guarantee reached 9%, labour productivity has increased, but for a substantial part of that period, wages rises have been very sluggish indeed.
“Particularly over the last seven or eight years, wage rises have been very slow – and we’ve had a freeze in the super guarantee.
“There are quite different forces at work in the labour market that determine wages.”
The industry fund sector, where workers’ retirement savings are controlled by trustee boards made up of union and employer representatives, is this week launching an ad blitz touting its nation-building capabilities.
Combet said the industry super sector had a $19.5bn pipeline of investments in infrastructure and property that would create more than 200,000 jobs over three years.
He said Australia’s super savings pool was nearing $3tn.
“It’s a monumental achievement to have got to that point,” he said.
He said the rate still needed to be increased to guarantee people a good standard of living in retirement.
“But nonetheless the retirements savings pool that we have is immensely important in the economy,” he said.
He said the sector had helped recapitalise ASX-listed companies struck by the coronavirus-induced economic crisis and stood ready to pump more money into areas including commercial property.
Without the savings pool, the covid recession “would be worse”, he said.
“It’s a tremendous benefit for the Australian people to have a retirement savings system that’s able to invest in the economy and also keep growing to provide a decent standard of living in retirement,” he said.
