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Positive industry response
A voluntary opt-out additional super savings scheme was the key outcome of a report from a Federal Government committee tasked with improving the superannuation saving habits of under-40s.
The report proposed that individuals commencing employment be placed in a voluntary contribution arrangement that adds 3 per cent of their wage onto the current 9 per cent Superannuation Guarantee contribution, bringing the total to 12 per cent.
Tabled on June 19, the House of Representatives Economics, Finance and Public Administration Committee report findings were welcomed by superannuation industry bodies the Association of Superannuation Funds of Australia (ASFA) and Investment and Financial Services (IFSA).
The current Superannuation Guarantee contribution for new employees is 9 per cent of their wage, unless they opt to make a voluntary contribution.
ASFA welcomed the proposal, citing the success of US-based ‘soft-compulsion’ options, where employees voluntarily commit a part of their annual wage rise to their retirement plan.
According to , ASFA chief executive officer, encouraging such changes to individuals’ savings behaviour is particularly important in light of super amendments proposed in the Budget.
“Importantly, it would signal to individuals, particularly younger workers, that the norm for saving for retirement should be 12 per cent of wages, not 9 per cent as currently set by the Super Guarantee,” she said. “[It] has great merit in that it would change savings behaviour, but importantly, it is not compulsory if individuals or families have other cash flow needs or priorities.”
IFSA also demonstrated its support for the proposal. “Overall, this inquiry has been a very productive consultation exercise and IFSA welcomes the committee’s findings,” said , chief executive officer of IFSA. “Additional contributions of between 3-5 per cent on top of the compulsory 9 per cent Super Guarantee means that [young Australians] are far more likely to reach independent means in retirement.”
But the report did not receive such strong support from all quarters, with some submitting organisations expressing concerns about the impact of preservation rules on under-40s.
, a newly formed superannuation fund targeting under-40s, argued that superannuation was not an attractive savings vehicle for this demographic, largely because of the potential need to access savings in unforeseen circumstances. Almost 41 per cent of respondents to a Max Super survey said the fact that they needed the money now stops them saving for retirement.
Andrew Barlow, chief executive officer of Max Super, expressed disappointment at the committee’s decision not to take their findings into account.
“In dismissing our proposal to take a hard look at the idea of preservation … the committee has missed an opportunity to increase voluntary contributions,” he said, citing the results of a case study they conducted that showed compounding interest on earlier contributions combined with ongoing savings would build greater funds for retirement.
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