Ways To Improve Our Superannuation System
Australia’s world class superannuation system is set to undergo some changes with the Government announcing a range of measures in October Budget. There is a plan to improve the information you see about superannuation when you log in to do your tax and a plan to have super accounts stay with members to reduce unintended creation of accounts. With these measures, the Government estimates a typical young Australian entering the workforce in their 20s could be around $87,000 better off at retirement.
However, the implementation of this plan is littered with details that could derail the system, such as:
- members funds getting defaulted to funds whose profits don’t go to members,
- short term assessment of the performance of funds causing them to close to new members,
- the performance of only a few funds being shared and doing so in a way that doesn’t represent all costs and benefits of investment, advice and insurance, and
- creating incentives for short term competitive investing which would undermine the capacity of super to create jobs by investing in Australian infrastructure.
The Government also has a plan to change the system before the IT systems are ready at the Tax Office. It is important that good changes to how we manage our superannuation savings are not subject to false timelines created by election cycles.
These announcements followed the COVID-19 response that included accessing super early for the purpose of stimulus to the economy and advocacy from some that our increase to super not occur as planned. These conversations beg the question, how much do you have and how much should you have before you make taking it out okay?
According to the Association of Superannuation Funds of Australia (ASFA), the annual income figure for a single person to achieve a modest standard of living in retirement is $27,902. For a comfortable retirement, ASFA recommends a budget of $43,687. But we know that for Australian’s on more modest incomes or that have part-time or season work patterns will find it difficult to save enough to meet these targets.
The difference between the average and what is recommended can be reduced in many ways.
Firstly, the gap can be decreased through increases to our superannuation guarantee. In 2020, under Australia’s Superannuation Guarantee laws, employers are required to pay 9.5% on top of your wages into super. Because of a concern that this will still leave many retirees too reliant on the age pension, the Parliament has legislated a gradual increase of the percentage to 12% by 2025.
Some recent research showed the superannuation guarantee reduces costs for the taxpayer. For 2020 alone, the super guarantee has already saved the federal budget $17 billion – a figure expected to rise to $100 billion by 2058 if super increases as planned. Super combined with a means-tested pension is the most efficient way for governments to reduce the burden on taxpayers and get Australians a decent retirement income so that the standard of living we had when we were working is maintained in our retirement.
Second, by consolidating accounts. As shown in the table consolidating your accounts can have a big impact on your retirement balance largely due to the accumulated impact of paying two (or more) sets of fees and potentially insurance premiums.
The combined effect of increasing super to 12% by 2025 and consolidating accounts for those under 30 or earning less than $40,000 per year is stark. It could mean an additional $60,000 in retirement.
There are also other ways to increase your super, such as splitting super more evenly between partners, making additional payments, and getting co-contributions from government if you qualify, which could add even more.
In addition to good information and sensible performance benchmarking, superannuation should be paid to everyone, including those who are under 18 years old, those on parental leave and to those who are earning less than $450 per calendar month. By creating an equal system for all workers, we can ensure the superannuation system creates jobs, boosts national savings and improves Australian’s standards of living in retirement.
At Rest Industry Super, the super fund for those working in our industry, the focus is on low fees, long-term performance, and profit returning to members. The fees have recently changed, and Rest Industry Super continues keep fees low. Details about that can be found on the REST Industry Super website. They should be analysed by looking at a combination of low fees and competitive investment returns, and your personal circumstances. The recovery of performance from the last quarter has continued, with a return of +2.69% for the quarter, REST’s Core Strategy once again delivered on its investment objective. That is an average of a positive return of 7.50% p.a. over the last 10 years, as of 30 September. Rest Industry Super was 3rd out of a list of comparable super funds as measured by SuperRatings.