The Super Guarantee Debate Is Heating Up But Will The Rate Stay Frozen?

As arguments for and against increasing the rate of compulsory super contributions continue to swirl, we take a step back and explain what the proposed increase is, who’s saying what on either side of the debate and whether it’s likely to ultimately go ahead.

What is the super guarantee increase?

The super guarantee is the compulsory amount that an employer must pay into any eligible employee’s chosen super fund. The guarantee has been frozen at 9.5% of an employee’s ordinary wages since July 2014, but as the Australian Taxation Office (ATO) explains, from July 2021 it is due to incrementally increase until it reaches 12% in July 2025. 

The super guarantee is scheduled to rise by 0.50% each financial year as follows:

Period  General super guarantee (%)
1 July 2021 – 30 June 2022 10.00
1 July 2022 – 30 June 2023 10.50
1 July 2023 – 30 June 2024 11.00
1 July 2024 – 30 June 2025 11.50
1 July 2025 – 30 June 2026 12.00

Source: ATO

Legislation to increase the super guarantee was introduced by the Labor government back in 2012. At the time, the super guarantee was sitting at 9% and was set to increase to 12% by July 2019. While the super guarantee did rise to 9.25% in 2013 and to 9.5% in 2014, it was then frozen by the Coalition government. But it’s now very much back on the political agenda. 

Who’s arguing against the increase?

The Morrison government has faced growing internal pressure from as many as a dozen Coalition MPs and senators to either delay or ditch the scheduled increases. For example, Liberal Senator James Paterson has argued that no more money should be put into a “broken” super system, while fellow Liberal Senator Andrew Bragg has suggested that super should become voluntary for workers earning less than $50,000 a year. 

Think tank the Grattan Institute added further fire to the debate after it released a report which argued that increasing the guarantee to 12% would cost the average worker around $30,000 over their lifetime and lower their Age Pension payments in the future. To reach this finding, the report assumed higher super contributions would be offset by lower wages. That is, increased contributions would be paid for by workers rather than employers. 

Who’s supporting the planned increase?

The Association of Superannuation Funds of Australia (ASFA) has widely criticised the Grattan Institute report and its analysis. In a statement, ASFA said the report made the “heroic assumption” that not increasing the guarantee would instead lead to a 2.5% wage increase which would flow through to individuals in full. 

ASFA previously argued that an average 30-year-old worker currently earning $70,000 a year would be $71,600 better off at retirement if the super guarantee increases to 12% as scheduled. 

As far as public opinion goes, the majority of Australians appear to support increasing the compulsory super guarantee. According to a recent report commissioned by Industry Super Australia, 87% of the Australians surveyed were in favour of lifting the guarantee above its current 9.5%. 

Why? It seems many Australians don’t think they’ll have enough money to retire on. The survey found that only 19% of people with a super account, or less than one in five, believed that they’ll have enough super to comfortably retire on in the future. The majority believed they would need to either work longer or rely on the pension in retirement if super contributions don’t increase. 

What does Canstar’s finance expert think?

Canstar’s Group Executive of Financial Services, Steve Mickenbecker, said it’s important to consider the long-term effects of a change.

“In the short term, you could say that an increase would mean the government would lose out on tax revenue and that low income earners can’t afford to pay any more,” Mr Mickenbecker said. 

“But you’ve got to think about what we were trying to achieve when we brought the super guarantee in: to wean people off welfare and onto their own, self-funded retirement incomes. The higher contribution rate is going to be working towards that same end.” 

However, Mr Mickenbecker added that implementing the increases may be difficult in our current economic climate. 

“When you’re in a low inflation environment, people aren’t getting big pay rises and it’s harder to say ‘we want to take an extra half a per cent away from you’. That makes the 2021 increase a bit of a challenge,” he said. 

Will the super guarantee increase be frozen again?

Despite the debate surrounding the issue, increasing the super guarantee continues to have bi-partisan support. Prime Minister Scott Morrison and Treasurer Josh Frydenberg have maintained that there are no plans to change the planned increase, while Opposition Leader Anthony Albanese has described raising the super guarantee to 12% as “a practical reform that will make an enormous difference to people’s lives”.

However, on the recommendation of the Productivity Commission, there is an upcoming review into retirement incomes, which is likely to address the increases to the super guarantee, and could look into whether they should be kept in place, delayed or scrapped. 

If you’re comparing Superannuation funds, the comparison table below displays some of the products currently available on Canstar’s database for Australians aged 30-39 with a balance of up to $55,000, sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Use Canstar’s superannuation comparison selector to view a wider range of super funds.

Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group you selected.

Image Source: David Tadevosian (Shutterstock)

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