The big thing Aussies aren't doing with their tax cuts
To increase the super guarantee (SG) or not, that is the question.
According to last week's Retirement Income Review, holding the rate at 9.5% is fine provided Australians utilise the current income retirement system in its entirety - which includes making voluntary contributions. It may work in theory, but new research from Colonial First State shows that it may not bear out in reality.
The review stated: "With a 9.5% SG rate, lower balances would be offset by some other consequent changes, including likely increased voluntary contributions, lower contributions taxes and lower fees."
It goes on to note that "Voluntary contributions to superannuation are encouraged through tax concessions."
Yet according to a Colonial First State survey of 2000 Aussies, these concessions aren't prompting people to change their behaviour.
It found that only 6% plan to use tax cuts backdated to July 1, as announced in the Budget, to replenish their super balances, even in spite of 16% of respondents having withdrawn super as part of the Government's early release of super scheme.
Of the small proportion of people who do plan to top up super, most are aged between 55-65.
"The research indicates that those who have needed to access super early as a way of surviving income loss, particularly younger Australians, are not making rebuilding their superannuation a priority," says Colonial First State general manager Kelly Power.
"As we begin to emerge on the other side of the pandemic, it's important to start thinking about the long-term impact your super withdrawal could have on the quality of your retirement. Seemingly small decisions now could have a big effect on the kind of retirement you've always dreamed of.
"Middle-income earners will get an extra $1080 or approximately $20 per week in their back pockets. If you salary sacrificed approximately $15 of your pre-tax income per week, you would still be left with an extra $10 per week in your back pocket after-tax and benefit from an extra $40,832 at retirement.
"And by splitting your tax cut in this way you balance the use of the extra cash - both now and into the future."
So how will Aussies spend their tax cuts?
The majority (57%) plan to save the cash for a rainy day. Of these, 52% said they'll put it in a general savings account and 18% said they'll put it in a special savings account for things such as a home or an unexpected emergency.
Of the 22% who plan to spend it, 33% will put it towards everyday living expenses, 24% will put it towards discretionary items such as clothes and electronics and 13% will use it for a holiday. Meanwhile 10% plan to use the money to pay down their mortgage.