False Dichotomy: Salary or super – don’t fall for it!

What guarantee is there that wage growth will improve if the super increase is again blocked by the government?

So the government backbench hounds are barking again, loudly criticising Australia’s world-class superannuation system. This is even after the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry had very little criticism of industry funds compared with the enormous malfeasance of the retail banks!

Now the press is reporting that the government is seriously considering an opt-in system for the difference between the legislated 12 percent and the current 9.5 percent. One of the principal reasons our superannuation system is so successful is its compulsory nature. It is designed to provide a dignified retirement nest egg not real estate, not university fees, not medical expenses (except in severe cases). The release of superannuation is, and should be, based on age and work status. Tax incentives are in place to encourage individuals to save for retirement.

Former Prime Minister Paul Keating lashed out at the hounds advocating for an opt-in system, noting the government is being “prompted by zealots in its backbench”.

“And what is this all about? What is the high point of ideological objection here?” Keating pointedly asked. “It is that trade unions, through the not-for-profit industry funds, have a role in capital markets – shocking!” Yes, industry funds now have the muscle to question corporate practices in areas such as sustainable investment, sound corporate governance and gender equality in their workforces and boards. And they can influence capital markets accordingly.

So, is it salary or super? Is it not true to say that those who opt in for salary will pay for their salary increase with their own super money? And they will also pay additional tax? And they will retire with considerably less super? Or should it be both?

Don’t forget that the 12 percent compulsory super contribution by 2025 has already been legislated and is due to begin on 1 July 2021. Furthermore, what guarantee is there that wage growth will improve if the super increase is again blocked by the government? So the dichotomy is patently false – super should move up to 12 percent and salaries should increase, but not at the expense of super.

The CEO of the Australian Institute of Superannuation Trustees, Eva Scheerlinck, has estimated that the additional 2.5 percent would increase an average couple’s retirement by $200,000. “There are lots of ways to deal with low wage growth, but forcing people to fund their own pay rise shouldn’t be one of them,” she said in a recent interview.

Former Prime Minister Kevin Rudd indicated that using the rhetoric of 'choice' was an ideological obsession because the whole point of super is its compulsory nature.

The CEO of Industry Super Australia, Matthew Linden, has said that the legislated increases to super should go ahead. “Removing the guarantee in the super guarantee to make it ‘optional’ is a recipe for higher taxes, lower lifetime incomes, and a red tape nightmare for business,” Linded said. “This isn’t a choice – it’s a sneaky tax grab that will leave people worse off and rip up one of the system’s founding principles.”

So the debate will be in full swing leading up to the end of this financial year. The goal is 12 percent and if you can, let your MP know your views. One thing we know for sure – it won’t be handed to us on a proverbial silver platter.

Bernard O’Connor
NGS Super
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