Government hints at SG rate hike freeze
After the final report of the Retirement Income Review was handed down on Friday, the government has hinted it is likely to pause the scheduled increase of the superannuation guarantee rate.
The current mandated SG rate for employers is 9.5 per cent of their ordinary time earnings, with a gradual increase by 0.5 of a percentage point every financial year from 2021–22 at 10 per cent up to 12 per cent by 1 July 2025.
But the 650-page retirement savings review has observed that a more efficient use of savings in retirement can have a bigger impact on improving retirement income than increasing the SG.
Moreover, the review, chaired by former senior Treasury bureaucrat Michael Callaghan, noted the weight of evidence suggests an increase in the SG rate will result in lower wages growth, thus impacting standards of living.
The report suggested a number of ways that individuals can significantly boost their retirement incomes without having to increase their superannuation contributions, such as more effectively drawing on superannuation assets, achieving better-after-fee returns and accessing equity in their home.
Commenting on these findings, Treasurer Josh Frydenberg said the government will use the report in “consideration of future policy decisions”.
“The report looks at this in detail and makes the comment, and I will quote it: ‘maintaining the superannuation guarantee rate at 9.5 per cent would allow for higher lending standards in working life’,” said Mr Frydenberg.
“So the report goes into some detail about the trade-off between a working life income and people's wages, and that with an increase in the superannuation guarantee, and points out that the most effective way for people to secure themselves in retirement is not necessarily an increase in the superannuation guarantee, but by more efficiently using the savings that they do have.”
He added that a decision will be made by the start of the next financial year.
“What the Prime Minister and myself, Jane and other colleagues have said is that we will consider this report, we will consider other views that have been placed out there and we will make a decision about that in light of current circumstances before the scheduled increase takes place,” Mr Frydenberg said.
“I note that this report is one voice and there have been many others in this space including the governor of the Reserve Bank who has pointed out clearly the trade-off between a person's wages and the superannuation guarantee. The Grattan Institute has pointed out that trade-off as well. And we will make a decision by that time next year.”
In September, small business ombudsman Kate Carnell wrote a letter to Mr Frydenberg supporting such a freeze, proposing a two-year deferral on legislated SG increases.
She also called to cut the 15 per cent tax on compulsory employer superannuation guarantee contributions down to 7.5 per cent during that time.
“Many small businesses are already struggling to stay afloat as a result of the COVID-induced recession and cannot afford to pay higher costs,” Ms Carnell said.
“These increased costs would put small-business owners under even more financial strain, placing jobs and businesses at risk.”