20 March 2012
Historic day for Australians: Compulsory super contributions set to rise
**ASFA CEO Pauline Vamos is available for interview**
The peak body for the superannuation industry hailed the historic passage of legislation through the Senate overnight which will increase compulsory superannuation contributions from nine to 12 per cent.
The Minerals Resource Rent Tax (MRRT) legislation and related Bills not only ensure a gradual increase in the Superannuation Guarantee (SG) but also improve equity in the system by way of a low-income earners super tax rebate.
The Association of Superannuation Funds of Australia (ASFA) has been advocating an increase in compulsory contributions for the past decade.
“This is an historic day for Australians and the Australian economy: It is a significant step towards ensuring working Australians can retire with dignity,” said ASFA CEO Pauline Vamos.
“Today there are five working people to support each Australian aged 65; by 2050, this is projected to drop to 2.7.
“An increase in the SG will take the pressure off the Age Pension and assist more working Australians to a better quality of life in retirement.
“Boosting superannuation also boosts the Australian economy, increasing the nation’s GDP, creating jobs and providing much-needed private and public infrastructure investment.”
According to a report by Allen Consulting Group, commissioned by ASFA, an increase in the SG to 12 per cent will lead to a 0.33 per cent increase in (real) GDP by 2025 compared to the no-reform scenario.
“This will equal about $195 extra in the hands of every Australian in 2025, or an extra $520 for every household,” said Ms Vamos.
“ASFA has also been advocating for a better deal for low-income earners and we therefore welcome the introduction of the low-income earners tax rebate.
“Currently, people earning up to $37,000 a year do not receive any tax benefit from their superannuation contributions because their income tax rate is already at or below 15 per cent.
“Under the rebate, this 15 per cent tax on contributions will be redirected into the super accounts of lower income earners assisting them to build their savings quicker and earlier, with the balance gaining the full benefits of compound interest.”
Estimates show the rebate, to come into effect for contributions made from 1 July 2012, will beneficially impact 3.5 million Australians, with the majority of recipients being women in casual and part-time work.
“These reforms are good for the economy, affordable, equitable and necessary,” said Ms Vamos.
“The more people save today for tomorrow the more self-reliant they become in retirement: The recent turmoil in Europe and the US, where there have already been cuts in state pension benefits, demonstrates the importance of self-reliance.”
With the increase in SG to 12 per cent more Australians will join the ranks of the quarter of the workforce already receiving more than the nine per cent contributions.
Given the increase is to be phased in over seven years, employers will not face any sharp increase in labour costs, and workers will not face any cut in take-home pay, said ASFA.
For someone on an income of $60,000 a year (a typical wage earner), with SG at nine per cent, their income in retirement (including part-Age Pension) after 35 years of contributions would be around $29,300 per annum (based on retirement savings in today’s dollars of $260,600).
With the SG at 12 per cent, their retirement lump sum will be around $350,000 and their retirement income would be $33,500.
This can be compared to the ASFA Retirement Standard expenditure needs for a single person of $21,930 for a ‘modest’ lifestyle and $40,407 for a ‘comfortable’ lifestyle as at December 2011.
The maximum single Age Pension (including supplements) is $19,470 per year.
For media inquiries, please contact:
Pauline Vamos, CEO, 0433 169 342
Rebecca Glenn, GM Marketing and Communications, 0416 170 439
Megan McDougall, Media and Communications Coordinator, (02) 8079 0849
About ASFA – the voice of super
The Association of Superannuation Funds of Australia is the peak industry body representing the superannuation and retirement industry. ASFA is the only organisation that represents all types of superannuation funds (retail, industry, corporate and public sector) and associated service providers. ASFA members manage or advise on the bulk of the $1.3 trillion in superannuation assets as at September 2011. Its members represent over 90 per cent of the approximately 12 million Australians with superannuation.