12% won't be heaven sent

The turmoil continues in the financial press regarding the legislated increase of employer contributions (SG) to super to 12 percent. The SG rate was three percent when introduced on 1 July 1992 and rose to nine percent in the following 10 years. It has only risen by 0.5 percent in the last 18 years! Legislation was passed in 2013 increasing the rate by half a percent each year from 1 July 2021 until it reaches 12 percent in 2025 after the Abbott government postponed the gradual increases at that time.

So why is the 12 percent such a big deal?

Firstly, it would mean that people would not have to work as long to attain a comfortable retirement. Even the small, gradual increases with the benefit of compounding interest over years would strengthen account balances. Secondly, it would deepen the pool of our national savings which is based on a world class retirement plan.

The superannuation pool of money allows governments and corporate investors to borrow money at commercial rates for infrastructure projects such as roads, rail and airports. No need to go overseas for capital. It certainly served Australia well during the Global Financial Crisis, avoiding a recession. And the 12 percent contribution rate was the original Keating plan to provide a comfortable and dignified retirement via an income stream. And thirdly, it would relieve pressure on the Age Pension as the proportion of retired Australians grows in relation to those still in the workforce. It is a social benefit!

So what’s the rub when the benefits are so clear?

More than 10 government backbenchers have called for yet another postponement of the SG increases. While acknowledging that the increase has been legislated, Senator Hume’s comment on the increases was “I’m reasonably ambivalent. It’s going to be a political decision.” In response to the arguments that the nation cannot afford the increases due to the effect of the pandemic, Labor has accused the government of forcing more Australians to retire in poverty.

The political dance, the spin and the rhetoric will be interesting to watch in the run up to the scheduled date of 1 July 2021. No doubt the old arguments will be regurgitated that the increase will result in lower wage growth. And the false dichotomy that if the increases come in, unemployment will sky-rocket and wages will remain stagnant.

Just ask the teachers, nurses, police and firefighters about wage increases. The master of the succinct and architect of compulsory superannuation, Paul Keating, has called the proposal to further delay the increases a ‘nasty attack’ on workers’ retirement savings. The claims that keeping the SG contribution at 9.5 percent will deliver workers a future pay rise are flawed and lacking in substance.

So the increase to 12 percent will not be heaven sent, but will be the subject of debate and struggle even though it was an election promise. As always, the argument will be that we can’t afford it now. The same argument that was run by some employers when the compulsory SG came in in 1992. The good fight says that the increase to 12 percent should stay in place for the dignified retirement of all workers who so deserve it.

On behalf of the NGS Super Trustees, management and staff, we wish you a safe, healthy and prosperous New Year. It has been a difficult year for all of us.

Bernard O’Connor
NGS Super Company Secretary/Manager Insurance and Complaints
(Important information: The information in this article is general information only and does not take into account your objectives, financial situation or needs. Before making a financial decision, please assess the appropriateness of the information to your individual circumstances, read the Product Disclosure Statement for any product you may be thinking of acquiring and consider seeking personal advice. Past performance is not a reliable indicator of future performance. Any opinions are those of the author and do not necessarily reflect the view of NGS Super.)