Academic sparks debate on deferring super

Lifting the Superannuation Guarantee (SG) employer contribution from 9 to 12 per cent flies in the face of research which suggests financial stress is highest for those aged under 45.

This is the view of Bruce Bradbury, a senior research fellow in the Social Policy Research Centre at the University of New South Wales.

“Superannuation contributions impose large burdens on young adults at a time when they can least afford them,” Bradbury argues.

“With this proposed increase, it is time that the policy was amended to improve the match between retirement saving and costs across the life course.”

Financial planning and superannuation industry bodies welcomed the SG Bill’s passage through Federal Parliament in late November last year.

However, Bradbury warns that superannuation contributions impose large burdens on people in their 30s and 40s at a time when they can least afford them.

“More superannuation, it is argued, will increase intergenerational equity, relieve fiscal stress on governments and compensate for the myopia suffered by individuals when saving for their future retirement,” says Bradbury.

“Even though the superannuation guarantee is paid by employers, it is generally agreed by analysts that the cost of the employer contribution ultimately falls on wage earners via reductions in wage increases.

“This means that, while superannuation saving addresses one important issue of lifecycle resource transfer (low incomes in retirement), it exacerbates another.”

The data suggests that while those aged under 30 are high savers, this drops dramatically when people reach their 30s and start taking time off work to care for children, purchase goods for children and purchase housing.

Using this saving measure, saving capacity only increases again once people reach their 50s. Even in retirement, it is not as low as in the 30s and 40s.

“Most people paying attention to superannuation are probably aged above 50. For the average pre-retirement person aged over 50, a larger contribution to super probably makes sense, unless they have some other preferred form of saving,” says Bradbury.

“But younger families might start to pay attention when they find a reduced growth in their pay packet. Are the early adult years really the best time to be saving additional money for retirement – particularly when they are already saving via home purchase? How can we rescue the young from superannuation?”

While Bradbury concedes that it is not possible within the current system to simply reduce the contribution rate for young people (or any other demographic group), he believes there are a range of secondary mechanisms that could be employed.

“One that is often mentioned is to allow people to access superannuation balances for house purchase,” he says.

“This has been criticised as undermining the life course saving objective of superannuation, but can also be seen as a mechanism to redress a key flaw in the superannuation saving model.

“However, while this might make sense in the context of our current housing markets, housing is not the best means of saving for retirement.

“It is hard to liquidate and increases the amount of wealth passing to the next generation rather than being used for consumption in old age.

“If we don’t want to encourage housing investment, there are nonetheless other potential strategies. We could allow access to super for other life course-related expenditures such as childcare fees or to supplement paid parental leave.

“Finally, one could simply allow super funds to pay out some funds to people under certain ages.”