When it comes to superannuation, there’s always a mix of good news and bad news. But have you ever thought about the changes that could be affecting your retirement savings without much noise in the media? Ross Gittins delves into an important shift that is set to impact every worker in the country.
From next month onwards, your employer will increase their compulsory contribution to your super by 0.5 percentage points, making it 12% of your wage. This move marks a steady progression initiated by the government over the last 12 years, gradually increasing contributions from 9% to now 12%. On the surface, this seems like a positive development as employers are mandated to contribute more towards their workers’ retirement funds.
But here’s where things get interesting – who really bears this increased cost? Economists suggest that typically about 80% of the cost is passed back to employees over time. Brendan Coates from the Grattan Institute explains that businesses tend to transfer these costs back to their workers through various means like lower pay rises or increased prices for goods and services.
Interestingly, not many people realize that part of the financial strains felt post-COVID could be linked to higher saving requirements for retirement set by the government indirectly impacting disposable incomes. With gradual increments in employee super contributions from pre-tax wages over recent years, individuals might feel temporary financial constraints but stand to benefit in retirement.
The narrative around superannuation has evolved significantly since its inception in 1992 when contributions were just at 3% and later increased progressively. The current trajectory aims at stabilizing contributions at 12%. For younger generations entering the workforce today, concerns about inadequate savings for retirement should ideally take a backseat given these structured increases.
However, owning a home plays a crucial role in determining one’s financial stability during retirement. Renting retirees often face more challenges compared to homeowners who enjoy better financial security through property ownership. While some may worry about accumulating excessive wealth in their super accounts post-retirement, studies indicate that many retirees tend to save rather than spend all their income during retirement years.
The big question remains: Will workers sacrificing immediate pay rises for enhanced employer contributions end up with more money than they require post-retirement? It’s a delicate balance between enjoying a comfortable lifestyle while working and having surplus funds during retired life.
As Gittins aptly puts it,
“Once you accept that workers actually pay for their employer contributions…will they be forced to exchange a lower living standard while they’re working for more money than they want to spend in retirement?”
Superannuation dynamics are complex and multifaceted; understanding these nuances can empower individuals as they navigate through various stages of their career towards eventual retirement bliss.
