What a freeze in superannuation could mean for your retirement
What a freeze in superannuation could mean for your retirement

Super freeze: How it could affect your retirement

Increasing superannuation rates enough to make a difference in retirement would cause an unacceptable reduction in living standards to people while they are still working, according a significant review into retirement income to be released today.

It paves the way for the Government to potentially argue to delay increasing superannuation payments from 9.5 per cent to 10 per cent, which is due to take place automatically from mid next year.

Increasing superannuation payments would result in lower wage growth, and benefit higher income earners more than middle and lower paid workers, according to review commissioned by the Federal Government in September last year.

 

Treasurer Josh Frydenberg will release a review into retirement income on Friday.
Treasurer Josh Frydenberg will release a review into retirement income on Friday.

It projects people's wages over their working life would be 2 per cent higher if super contributions are kept at 9.5 per cent, instead of increasing it to 12 per cent by 2025.

Prime Minister Scott Morrison and Treasurer Josh Frydenberg were previously committed to the super increase, but have softened their position this year.

Labor has argued against freezing super at 9.5 per cent in 2014 was done on the promise of higher wage growth, which did not eventuate.

The review, conducted by a three person panel including former International Monetary Fund boss Michael Callaghan, said most evidence showed higher superannuation contributions would come at the cost of lower wage growth.

"A rate of compulsory superannuation that would result in people having an increase in their living standards in retirement may involve an unacceptable reduction in living standards prior to retirement," it stated.

It also found that the age pension will continue to be sustainable for government to afford over the long term.

"Higher superannuation balances driven by a maturing system, combined with means testing, will continue to constrain government spending on the age pension," it stated.

Mr Frydenberg said the report "makes clear" the retirement income system was effective and sustainable.

Keeping superannuation at 9.5 per cent would mean a person’s lifetime wages would be 2 per cent higher, a new report claims Picture: Thinkstock
Keeping superannuation at 9.5 per cent would mean a person’s lifetime wages would be 2 per cent higher, a new report claims Picture: Thinkstock

"While the report doesn't make recommendations, its key observations will play an important role in better informing future public policy and the retirement outcomes delivered to Australians," he said.

The increase to superannuation is already legislated and will take place from July 1, unless the government actively overturns it with Parliamentary support before then.

Opposition treasury spokesman Jim Chalmers has previously argued against keeping superannuation frozen, saying even during the pandemic the 0.5 per cent increase would have a negligible impact on businesses next year.

He has said instead of the promised trade off of higher wages, "all we've seen since then is actually historically stagnant wages".

 

 

 

 

 

Originally published as Super freeze: How it could affect your retirement


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