Hiking super payments would cost Aussies' quality of life now


Lifting the super guarantee would mean more superannuation in retirement but lower wages today, according to the findings of the long-awaited Retirement Income Review.

The report found that lifting the super guarantee (SG) rate to 12% would lead to super balances at retirement 14-15% higher for middle and high-income earners and 16-18% higher for low-income earners.

But this would come at the expense of Aussies' current quality of life.

retirement income review super guarantee increase

The report estimates that, over the long term, holding the SG at the current rate of 9.5% would result in wages 2% higher than they would be at 12%. For the median income household pulling in $88,695 a year, that 2% difference would mean unrealised wages of $1774 a year.

The report also found that the net effect on savings loses potency as the super guarantee increases.

With each additional dollar of compulsory contributions would lift savings by 60-80 cents because households would sell down other assets. In addition, it found that holding the super guarantee at 9.5% would result in higher salary sacrifice contributions than increasing the rate to 12%.

retirement income review projected super balance at retirement by sg rates
Source: Treasury

It's also worth noting what a change to SG would mean for replacement rates, which is basically a measure of how well a retirement income system balanced living standards during the working year with living standards during retirement (expressed as a ratio of retirement income/working income).

The report projects that while replacement rates would be lower if SG was held at 9.5%, they would still reach or exceed the target ratio of 65-75%.

"A rate of compulsory superannuation that would result in people having an increase in their living standards in retirement may involve an unacceptable reduction in living standards prior to retirement, particularly for lower-income earners," the report states.

"If the SG remained at 9.5%, and retirement savings were used more efficiently, most people would achieve 65-75% replacement rates. Most would also achieve higher replacement rates than with the SG at 12% and drawing down balances at the legislated minimum rate."

As it stands, the SG rate is set to increase to 10% on July 1 next year and then to 12% on July 1, 2025. No announcement was made by  Treasurer Josh Frydenberg about whether next year's scheduled increase will or won't go ahead.

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David Thornton was a journalist at Money from September 2019 to November 2021. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.
Richard B
November 20, 2020 3.36pm

Just remember "Workers received no pay rise after the last superannuation guarantee hike was scrapped: ISA".


Eric Coyle
November 21, 2020 8.27pm

We have heard this in the past when super increases where put of and wages where supposed to go up but didn't. Why is the SG to be limited at 9.5% but politicians still get 15% plus.

Linda Glowacki
November 22, 2020 7.41am

Is it likely the contribution cap will increase from $25,000 before tax penalties when the super guarantees increase.? What is the penalty if someone contributes $30,000 in the current system (total from both employer and employee additional contributions)?

Helen Cherry
November 22, 2020 9.05am

Wasn't the increase in super payments over time based on the assumption that incomes would increase over time? Doesn't this report highlight there is something wrong if this hasn't happened?

November 29, 2020 5.15pm

I would love to see some critical analysis of the government's superannuation position paper by Money Magazine. This article seems to be presenting the Federal Government new study like it's all facts, rather than doing any solid questioning of whether it is or isn't in the best interests of your readers. Disappointing. Be better Money Magazine! We clearly have not had much of a wage rise for many years (and yet we have waited a long time for this legislated rise in super). And loads of people, especially women and low wage earners will still retire with very low super. Honouring the long legislated super guarantee increases is the only way many of us will reach a reasonable level of super by the time we retire. Please don't become an apologist for the Federal Government/large employer position Money Magazine.

David Thornton, Money magazine
November 30, 2020 9.15am

Hi Robyn.

Thanks for reading the article.

It seems you're a bit confused about what the Retirement Income Review is. It's not a Federal Government position paper, as you say. Rather, it's an independent review that was commissioned by the Federal Government. So its recommendations are not necessarily the views of the Federal Government.



Money team