There's been a lot of talk lately about whether to up the Super Guarantee to 10% by next year and 12% over time. That extra money gets put away into funds. Employees won't see it for many years in most case, and it could potentially simply replace a pay rise.
This is just one finding from the Retirement Income Review, a 600+ page document compiled by Mike Callaghan, a former Treasury employee and chief of staff for former treasurer Peter Costello. This document has also presented other controversial ideas, such as allowing younger workers to access their superannuation savings to buy a house.
The bottom line is the super system seems ready for potentially its biggest update since the compulsory superannuation system was introduced by Paul Keating in 1992 when it was designed to reduce the pressure on the aged pension.
And it's a big deal now retirement savings have reached $3 trillion. That also equates to about $30 billion in fees for fund managers. High levels of immigration, big mortgages, shifts towards less secure and part-time employment, pandemics, and tech advances have also had an impact on super and where it should go into the future.
Bottomline is, with these type of trends, it may be that instead of a steady increase in the contribution rate as planned, employees may need to decide to forgo better retirement incomes down the track in exchange for more pay in their pockets now.
Another issue has been the constant changing around the edges to the scheme to where to some degree, instead of it being a retirement scheme for the people, it may have become a wealth accumulation strategy particularly for the well off, based on the many tax incentives.
Some of the these have been wound back such as when the Turnbull government imposed a $25,000 annual limit on transfers into super. However, the system still overwhelmingly favours the wealthy with the tax breaks designed to entice workers to tip extra cash into their superannuation are skewed in favour of high-income earners.
However, in one more interesting point, Mr Callahan highlights that the cost of the age pension is expected to fall over the next 40 years because Australians will have more superannuation to fund their retirement, making the pension less of a burden on government coffers, although the cost of superannuation tax concessions is projected to grow.
It's a tricky business that has some proposing that we simply create a properly funded pension system supported s by earnings from a sovereign wealth fund such as the Future Fund that funds public servants' super.
We'll stay on top of these current public discussions for you, and are ready to help when you need to improve the way you manage your Self Managed Superannuation Fund.