Industry Super Australia (ISA) has called for a Federal Government funded $5000 boost to be given to lower income earners in a bid to increase superannuation restricted by broken work patterns.
ISA said the annual boost — dubbed “Super Seed” — would be given to people in the bottom three income deciles which included part-time and casual workers and those with broken working patterns including women who have taken time off to raise children.
ISA stated the proposal would compensate for gaps in contributions caused by low levels of earnings that may not trigger Super Guarantee contributions.
While the contributions would be funded by the Federal Government ISA said that when compounding interest would lift super balances and when “combined with increased earnings taxes on the higher level of savings around half of the long run cost is offset, making it highly affordable in its own right”.
ISA also claimed long-term savings from the move and using modelling conducted by ISA and Rice Warner Actuaries found that by 2055 aggregate superannuation balances would be $440 billion higher thus reducing age pension costs in that year alone by $1.7 billion.
The modelling also found that for low income earners now aged 25 to 29 and retiring in 2055, their superannuation balances would be between $72,000 and $168,000 higher at retirement with the greatest impact evident among single females in the lowest three income deciles who would receive a boost in their superannuation anywhere from 38 per cent to 247 per cent.
“The superannuation system is meant to have comprehensive coverage. Yet large numbers of Australians at different points in their working life do not have sufficient earnings to attract employer contributions, have them paid at a low level, or cannot maintain continuity of contributions during spells away from work.”
“The proposal turns on its head the idea of just making catch up contributions later on and instead make contributions at a point where compounding will deliver the biggest bang for buck.”
