Retirement
Increasing the mandatory (SG) contribution rate to 12%
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Would it reduce inequality in Australia?

Retirement Income Review
The Retirement Income Review was formed in September 2019 with the appointment of the Panel Members, Mike Callaghan AM PSM (Chair), Ms Carolyn Kay and Dr Deborah Ralston. The Panel was supported by a strong secretariat from Treasury and it received many submissions from the superannuation industry, consumer groups, concerned individuals and other stakeholders.

The Panel delivered its report to the Federal Treasurer in July 2020 and it was released p ublicly four months later without any government analysis or indication of its likely impact on policy. The government has since indicated it will respond in the May 2021 Budget, which gave plenty of time for public analysis and commentary.

Almost all the public commentary relating to the Report has been on the level of Superannuation Guarantee (SG) contributions required for providing an adequate or comfortable retirement. While this is important, there are many other important areas which should help to improve public policy, and these have not been discussed. In coming weeks, we will focus on some of these matters, but we first need to analyse the arguments for setting the right level of SG.

What contributions do Australians receive today?
The SG started at 3% in 1992 consolidating the 3% (industrial) Award superannuation contributions begun in various industries
from 1986 onwards, and which led to the creation of many industry funds. Labor legislated for the rate to rise to 9% by 2002 (which it did) and later for it to move to 12%. Following many deferments by various Coalition governments, the headline rate of employer contribution is 9.5% today. It will move to 10% on 1 July this year and then gradually to 12% by July 2025 in 0.5% annual increments.

The SG is not universal. The Review estimated that about 10% of employees do not receive SG contributions, including many casual workers earning less than the $450 monthly threshold. Coverage is higher (at 94%) for those working full time. About 17% of workers are self-employed (including most of those in the gig and black economies) and they are not covered by the SG legislation. People out of the workforce due to illness, unemployment or caring for family also miss out on contributions during these periods.

Meanwhile, there are groups of employees receiving higher levels of contributions from larger companies under industrial enterprise bargaining agreements as well as many public servants receiving higher rates. For example, federal public servants receive 15.4% contributions, university staff get 17% and some state public servants receive 12% or more.
The full 9.5% is not set aside for retirement. There are deductions for fees, tax and insurance premiums which dilute the contribution as we showed in our submission [of 5 February 2020] to the Review. The move of the SG to 12% together with an expected reduction in fees from fund consolidation and competition will lead to higher amounts being accrued for retirement.

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