The Treasury Department's recent Intergenerational Report projects that the rise of SG contributions to 12% by 2025, will see the median superannuation balance at retirement increase from around $125,000 in 2020-21, to around $460,000 in 2060-61 in today's dollars.
While these statistics are impressive and SG rises are commendable, they serve no foundation in supporting the 17% of the workforce who are self-employed to retire with more.
Despite ASFA sounding the warning about this significant and growing portion of the Australian workforce for at least 5 years, the wider superannuation industry remains heavily focused on forced super contributions and has failed to make meaningful progress on addressing this growing problem.
This could have dire consequences come retirement considering the self-employed cohort already retire with an average of 50% less than their employee counterparts and 20% of self-employed people have absolutely no superannuation savings at all.
Some argue this isn't an issue since the superannuation system is geared towards employees and self-employed people would be happy to have a choice not to contribute to their retirement savings, but in reality, our experience from dealing with self-employed people every day suggests this simply isn't the case.
New members of GigSuper, a super fund designed specifically for self-employed people which launched last year, regularly tell us they desperately wanted to contribute to their super, but they were overwhelmed by the system and didn't know how to make it work in their favour.
So whilst the number of self-employed Australians continues to increase across the country, many will continue to fall prey to the idea that super has a massive veil of complexity and that it's just not worth their effort.
This is where we believe 'self-employed super' products can help the industry adapt to the changing needs of our workforce.
In addition to delivering low fees and strong performance (like all superannuation products should), 'self-employed super' products must differ in two key ways. They must:
Be approachable and relatable - for most Australians superannuation is considered a boring subject, until they reach fifties or sixties, when it becomes incredibly important. To make superannuation something people engage with earlier in their working lives, when there's still enough time for them to benefit from the power of compounding, 'self-employed super' products need to be more relatable and approachable. To take some examples of other industries within financial services, think brands that communicate less like NAB and more like Up, or less like CommSec and more like Robinhood.
Help their users make contributions regularly and correctly - employee-focused funds don't need to help their users make contributions because it's compulsory and their employer takes care of it for them. But 'self-employed super' products need a bespoke user experience, that takes account for the fact that 'self-employed income' is typically far more sporadic than 'employee income' and which helps their members make contributions consistently. As the low level of contributions by self-employed people who are currently using employee-focused products attests, without taking these considerations into account, very few self-employed people will contribute regularly to their super and the investment return on $0 invested is always going to be 0%.
At GigSuper we've combined purpose-built technology and automation, with every day human language that empowers self-employed people to start and keep making super contributions. And it's making a difference. Where the Retirement Incomes Review estimated that only 25% of self-employed people make contributions to super each year, because GigSuper makes it easy to start and automate contributions (even if you've got cash flow that fluctuates) with a custom designed user interface, 89% of our members have made a contribution in the last 12 months.
Further, where ASFA estimates that less than 10% of self-employed people make tax deductible contributions each year, as a result of our automated Notice of Intent to Claim functionality, a huge 83% of GigSuper members are claiming their contributions as a tax deduction.
These statistics are a clear indication of how much impact 'self-employed super' products can have.
Compounded over a working life, the simple acts of making regular contributions and taking full advantage of the concessional tax benefits of super, can have a transformative impact on retirement outcomes.
We need to bring the 2.2 million self-employed Australians into the superannuation conversation, by helping them understand super isn't just for traditional employees and showing them how to capitalise on the value of what's likely to be one of their largest retirement assets.
We urge all levels of Government, stakeholders, and industry professionals to join us and support the need for further superannuation education and support for self-employed Australians. Together we can highlight how sole traders can take advantage of the tax breaks within super, and help them safeguard a more comfortable retirement that befits their many years of hard work.
The self-employed community already has a lot on their plate, from figuring out GST and tax, to navigating the continuous business stresses of lockdowns, but superannuation should be a hurdle they can overcome with a bit of friendly guidance from an ever-evolving industry.