Amid a raft of controversial changes to superannuation in the recent Federal Budget, one issue was entirely forgotten: compulsory super contributions.
There was no change to the government’s delayed timetable of increasing the super guarantee (SG) – the proportion of wages employers are required to contribute to a staff member’s super account – to 12 per cent by 2025.
With the debate seemingly stalled, many businesses, including financial services Perpetual Investments and Frontier Advisors, have decided to show leadership on the issue and forged ahead with increases in super payments to their staff, well ahead of the government’s timetable.
The SG timetable debate could now erupt as an election issue with the ALP’s Shadow Treasurer, Chris Bowen, confirming to Investment Magazine that he is actively considering an announcement on a new SG timetable to be implemented if the ALP wins government.
Labor had planned increase the SG to 12 per cent by July 2019. But the Coalition Government announced several delays, and contributions will now remain at 9.5 per cent until June 2021, then increase by 0.5 per cent until it hits 12 per cent in 2025.
Labor’s official policy is to end the Coalition’s freeze on increases to the SG and fast track an increase to 12 per cent “when prudent”.
Chris Bowen’s representative told Investment Magazine the Shadow Treasurer could outline the specifics of Labor’s stance on the SG timetable during the current election campaign. That would include the issue of when an increase was ‘prudent’.
“Watch this space,” he said. “We’ll have more to say on super during the campaign.”
The spokesperson said Labor was actively weighing the pros and cons of an accelerated SG increase timetable. “The question is, can we bring it forward and how much is that going to cost?” he said. “It’s reasonably expensive moving the SG because of automatic concessionality.”
He added that bringing forward the 12 per cent cap by three to four years is “extremely expensive”. “It’s really difficult given the juggling act and priorities.”
There has been speculation that a re-elected Coalition Government could actually scrap any further SG increases. In February this year, Prime Minister Malcolm Turnbull denied the speculation, saying there is “no proposal to cut or restrain the rise, the already scheduled rise in the rate of contributions.”
Treasurer Scott Morrison’s office would not comment directly on the government’s SG timetable policy when asked by Investment Magazine. “There was nothing in the budget on it,” he said. “There was no change in the budget to our position on it.”
He refused to comment on whether the government was considering any changes. “Our policy has been announced previously,” he said. “There was no change to that in the budget.”
Australians’ super balances way below what they will need
The original SG increases were designed to bridge a significant gap between the super savings of Australians and the actual savings needed to fund their retirement.
According to the peak superannuation body, ASFA, a couple needs an income of $34,336 to fund a modest retirement, and $59,236 for a comfortable retirement.
ASFA estimates that a couple would need $510,000 of super to fund that comfortable retirement from the ages of 65 to 90, alongside the full age pension. Yet the average super balance for Australian men is just $98,535, and $54,916 for women.
ASFA’s chief executive, Pauline Vamos, supports the original Labor timetable. “Our preference would be for it to go back to the original timetable,” she says. “It does mean that extra few years of compound interest which does make a significant change to the retirement outcome of many people.”
But she recognises that going back to the original timetable is unlikely. Although it was doable: “we are in difficult economic times and we know that there is a great deal of opposition, particularly from some parts of the business community.”
Tom Garcia, chief executive of Australian Institute of Superannuation Trustees (AIST), says his organisation supports an increase to 12 per cent as soon as possible. “Ideally with an accelerated timetable to the current,” he says. “Moving to 12 per cent superannuation is a vital in ensuring the majority of Australians achieve a comfortable standard of living in retirement. Any further delay to the increase to 12 per cent goes against the proposed objective of super.”
Garcia says the SG increase debate needs to be restarted.
“The debate is important and moving to 12 per cent is the right step for the long-term benefit of Australia,” he says. “It will help ensure that current and future generations are better able to achieve a dignified retirement and reduce the Age Pension burden on the government. No matter the outcome of the election we hope to see a government that is fully committed to lifting the SG to 12 per cent.”
But some businesses themselves particularly in the finance sector aren’t waiting for politicians to act.
They’re using SG increases as part of a powerful way to show employees that they care about them while they work for the company, but also when they are retired.
Perpetual’s group executive of people and culture, Rebecca Nash, says her company is committed to the original super guarantee increase timeline. “We believe the commitment to the original super guarantee timeline is an important one,” she says. “We believe our actions speak louder than our words.”
Perpetual’s staff receives contributions of 10 per cent. But that will increase to 10.5 per cent from September 1 this year, and then rise 0.5 per cent each year, until it reaches 12 per cent in 2020.
Nash says that Perpetual is committed to helping Australians plan for and live well in retirement. “Our view is that super is a really, really important investment category for all Australians in the pursuit of that outcome,” she says.
Perpetual can do two things to help deliver that outcome, Nash says. The first is to contribute constructively to the superannuation debate, including the need to define the role of super. “The changes announced in the recent federal budget at this point are proposals, having not yet been legislated,” she says. “What we need to do is define super. Once we answer that, the other questions are more easy.”
But the second contribution to delivering retirement outcomes so to “control how we make that a reality for our people”.
Perpetual believes the original SG timelines will deliver a better retirement outcome for its employees. “Our actions are absolutely aligned with the purpose of why we exist as a company,” she says.
In a 2010 paper, Employer contributions to superannuation in excess of 9 per cent of wages, ASFA’s director of research, Ross Clare, found that a “significant minority” of employers paid above the then 9 per cent SG.
Many companies already rewarding staff with higher super
But in some industries a majority of employees received contributions in excess of the SG. That included the public sector, but also oil, mining, construction, banking and finance/investment industries. Clare said that in universities, a 17 per cent employer contribution was a common feature.
He said “the ability of employers to pay, the interest of employers attracting and retaining employees, and the bargaining power of unions all play a role in these outcomes”.
Matt McGilton, director of specialist finance recruiter, Kaizen Recruitment, says most super funds, and firms that work with – and consult to super funds – usually have a higher contribution rate, in some cases of around 10 to 13 per cent.
Perpetual’s Nash says staff see significant value in the above-SG contributions because it signals a serious commitment to their wellbeing. “We get really, really positive feedback from them about our higher SG contributions,” she says. “We get that feedback in the context of the broader commitment we have made to the wellbeing of our people.”
An important component of employees’ wellbeing is their financial wellbeing, Nash says. Perpetual doesn’t just make above-SG contributions, but it also provides free financial health checks including conversations about how staff can maximise their higher contributions.
The company also pays super on the unpaid portion of parental leave up to 40 weeks. While that is paid regardless of gender, Nash says Perpetual is showing leadership on the issue of retirement savings gap, which is more pronounced for women. “It’s practical action we can take that helps contribute to closing that gap.”
The above-SG payments also send a critical message: that Perpetual cares about its staff and is doing what’s right for their people, which is crucial in the war for talent. She says the benefits give Perpetual a “prospective leg up in accessing talent”.
“We know that the corporate world, and particularly financial services, is a competitive marketplace,” she says. “We know that prospective candidates, prospective business partners and prospective clients find many of our benefits, particularly this one, attractive.”
Commitment from appreciative staff
Frontier Advisors is another company that is ramping up SG payments for staff. Frontier’s head of practice, Kerrie Williams, says Frontier believes superannuation is a good long-term investment strategy for Australians. “We have a lot of confidence in the system,” she says.
To recognise that faith in super – and Frontier’s faith in its clients who operate in the super industry – Frontier is increasing its SG payments from 11 per cent currently, to 12 per cent from July 1 this year. “We will get to the mandated amount but in a quicker way,” Williams says.
The move will give staff the benefits of compounding over a longer period. “The sooner you build up the balance, the better your quality of life in retirement and the better your standard of living,” Williams says. “Our own view is that’s a good, sensible strategy for our staff in particular, but also the broader population.”
Williams says Frontier’s staff obviously have a better understanding about the benefits of super and higher contributions. “Super is normalised in here. People see that as a valuable proposition and see it as par for the course.”
But she thinks the broader population, understandably, doesn’t have the same level of understanding, which could create some resistance to higher contributions. “In the general population there may be some reticence around it. There might be less financial literacy around that as an option. People don’t have the same level of understanding or literacy about the benefits of super sector versus our own staff.”
Williams thinks other companies should consider accelerating SG increases ahead of the Government timeline. She says it shows that employers are prepared to make an investment in their long-term future and it shows they care about them “long after they’ve left the company.”
That will help them attract talent. “It’s not the thing that’s going to get them over the line. “But it’s a differentiator versus other firms. It all goes towards a package over things that you’re offering,” Williams adds.
ASFA’s Vamos says above-SG super contributions are a “remarkable employee benefit”.
“We think it is important for the outcome of their employees and it shows the value of having dignity in retirement,” she says. “It ultimately comes out of the balance sheet of the employer. It’s great to see employers realising that helping people save for their retirement is about looking after your workforce and treating people as people. That’s what modern companies of today are increasingly focusing on doing.”
Frontier’s Williams says given the importance of SG contributions to Australians’ retirement, the country needs to restart the debate around higher SG contributions. “It would be good if you could reignite the debate”, she says.
With a potential announcement from the shadow treasurer, Chris Bowen, possibly around the corner, the debate could well be reignited.